avatar Marel Poultry B.V. Manufacturing

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    ANNUAL REPORT 2007


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    Contents Marel Food Systems in figures 2 We are Marel Food Systems 3 Marel Food Systems worldwide 4 Shares 5 Chairman’s address 6 CEO’s address 8 To Shareholders 11 CEO and Board of Directors 12 Organizational structure 14 Corporate governance 15 Risk management 17 Corporate social responsibility 18 Human resources 19 Shares and shareholders 20 Investor relations 22 Development 2007 25 Acquisitions 26 Opportunities and outlook 28 Integration 29 Performance 2007 31 Financial performance 32 Business operations 35 Culture of innovation 38 Consolidated financial statements for 2007 41 The Board of Directors and CEO’s report 43 Independent auditor’s report 44 Financial ratios 45 Consolidated income statement 46 Consolidated balance sheet 47 Consolidated statement of changes in shareholders’ equity 48 Consolidated cash flow statement 49 Notes to the consolidated financial statements 50 1


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    H I G H L I G H T S Marel Food Systems in figures 2


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    H I G H L I G H T S We are Marel Food Systems – Return on Innovation Marel Food Systems is a global leader in developing and Expanding boundaries marketing high-tech equipment and solutions for food Marel Food Systems now comprises five product-oriented processors that increase productivity and profitability. business units, a network of 24 sales and service units This is achieved by creating products that significantly in 24 countries and a corporate structure. Together, the rationalize operations, maximize quality and fulfill current units supply a complete range of processing equipment and upcoming consumer needs. and services to all sectors of the food processing industry, which consistently provide added value for processors, Surpassing goals retailers and end consumers. At its Annual General Meeting in 2006, Marel Food Systems The fundamental reason for the company’s success is a set the ambitious goal of tripling annual turnover within core culture of innovation and development in partnership 3-5 years, mainly by means of strategic acquisitions to with customers, efficiency and responsiveness to market expand the company’s technological base and improve needs. Standardized equipment, custom-designed turnkey access to markets. The acquisitions of AEW Delford solutions and production control software innovated, and Scanvaegt in 2006, coupled with the agreement in manufactured and serviced by Marel Food Systems are November 2007 to acquire Stork Food Systems, exceeded designed for one purpose: to effectively and significantly this goal in a much shorter timeframe: pro forma revenues enhance the competitiveness of food processing for 2007 project a fivefold increase from the company’s operations. 2005 turnover. We are Marel Food Systems, and our products and services The task of integrating AEW Delford in the UK and have become a benchmark for expanding the boundaries Scanvaegt in Denmark with Carnitech and Marel concluded of food-processing performance. on schedule in 2007. The process will impact fully on the company’s operational profit during 2008. When the Marel Food Systems thrives on imagination and ingenuity. transaction of Stork Food Systems is finalized in 2008, a new It uses these elements to innovate solutions for all food round of integration will begin. processors, which then directly and positively affect the quality and value of fish, meat, poultry, cheese and prepared- food products around the world. 3


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    H I G H L I G H T S Marel Food Systems worldwide Marel Food Systems consists of four main brands that are complementary to each other: Marel in Iceland, Carnitech in Denmark, AEW Delford in the UK and Scanvaegt in Denmark. Together these brands supply a complete range of processing equipment to all sectors of the food processing industry. 4 main brands Marel Food Systems is a leader in its field with subsidiaries Production in 7 countries in 24 countries. Most of the company’s products are manufactured in Iceland, Denmark and Slovakia with Subsidiaries in 24 countries smaller production facilities in the USA, UK, Singapore and Brazil. In addition, the company operates a network of over Network of over 50 agents and 50 agents and distributors worldwide that market, sell and distributors worldwide service the company’s products. Over three-quarters of overall sales are achieved through subsidiaries. 4


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    H I G H L I G H T S Shares Share performance Marel Food Systems hf (symbol: MARL) shares are listed on the OMX NORDIC EXCHANGE, and are included in the OMX Iceland 15 and OMX Nordic Mid-Cap Indices, among others. The share price rose from ISK 77 at year’s end 2006 to ISK 102.00 at year’s end 2007, an increase of 32.5%. During the same period the OMXI-15 index decreased by 3.2%. The year’s highest end-of-day share price was ISK 102.5, and the lowest end-of-day share price was ISK 72.5. MAREL FOOD SYST E MS STO C K PRIC E CO MPAR ED TO THE OMXI-15 INDEX Marel Food Systems OMXI-15 TOP 10 S H AR EHO LDERS A S O F 31 DECE MBER 2007 Name No. of shares % Eyrir Invest ehf 126,170,437 31.25 Landsbanki Íslands hf, aðalstöðvar 84,845,640 21.01 Grundtvig Invest ApS 52,200,943 12.93 Atorka Group hf 24,194,067 5.99 Lífeyrissjóðir Bankastræti 7 10,884,141 2.70 Lífeyrissjóður verzlunarmanna 9,686,888 2.40 Sameinaði lífeyrissjóðurinn 5,585,750 1.38 Ingunn Sigurðardóttir 5,430,498 1.34 Helga Sigurðardóttir 5,348,749 1.32 Súsanna Sigurðardóttir 5,308,774 1.31 Total 329,655,887 81.64 Others 74,129,810 18.36 Registered share capital 403,785,697 100.00 5


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    Chairman’s address Marel Food Systems is a strongly financed and fast- Well placed in a fast-growing market growing global company serving the food processing The industry in which Marel Food Systems operates is industry. Its expansion in recent years has been based on an exciting, fast-growing business driven by changes profitable internal and external growth achieved through in consumer habits and geographical expansion. It has the acquisition of other companies operating in similar exceeded economic growth considerably in the last 10 fields. The company is listed on the OMX Nordic Exchange years, and is expected to grow at the same rate of 5-6% with a broad base of investors and a market value of annually over the coming years. approximately EUR 450 million at year-end 2007. The market to date has been highly competitive and Marel Food Systems is at the forefront of developing and fragmented with no clear industry leaders. Our customers, marketing high-tech applications for the international however, have been consolidating and are consequently fish, meat and poultry industries, and has also moved into demanding more and better solutions and after-sales the cheese, vegetable and convenience food business services on a global scale. in general. By using Marel Food Systems technology, customers are able to increase productivity significantly through better utilization of raw material and manpower. TURNOVER 1983–2007 700,000 600,000 Income in thous. of EUR 500,000 400,000 300,000 200,000 100,000 0 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006* 2007* Marel Food Systems AEW Delford and Scanvaegt Stork Food Systems * Pro forma turnover due to acquisitions 6


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    Growth strategy and execution Food Systems plans a pre-emptive share issue of EUR At the Annual General Meeting in early 2006, Marel Food 120 million that is secured by Landsbanki with support Systems announced an ambitious two-step growth from Eyrir Invest and Grundtvig Invest. The three largest strategy. In the first 3-5 years expansion would be built shareholders in Marel Food Systems have thus committed on 2-4 strategic acquisitions that would in the second to support the growth strategy. step fuel internal growth and profitability. The company’s strategy is clear and management is executing it Outlook vigorously. After three substantial acquisitions in the last two years, Marel Food Systems now has the scale and scope to serve During 2006, the Board and management showed their its global customers. The combined worldwide market determination in reaching these goals by acquiring two share of Stork Food Systems and Marel Food Systems of Marel Food Systems’ main competitors, AEW Delford in within the meat, poultry and fish processing industry the UK and Scanvaegt in Denmark, thereby doubling the will be 15-16%. company’s revenues and market share. Pro forma revenues of core businesses for 2008 are In November 2007, Marel Food Systems entered into an estimated close to EUR 650 million in 2008 compared agreement to acquire its long-term partner Stork Food to EUR 130 million in 2005. Moreover, EBIT is expected Systems. The companies’ businesses are complementary: to be close to EUR 60 million compared to almost 10 Stork Food Systems’ strengths are within the poultry million in 2005. segments, Marel Food Systems’ roots are within the fish processing industry. The acquisition is subject to the Marel Food Systems will not enter into other large-scale approval of antitrust authorities, which is anticipated in acquisitions for the time being. Full focus will now be the first half of 2008. directed toward capturing synergies and increasing profits. A stronger and larger company will have greater ability to Strongly financed company with broad increase internal growth, especially through new markets investor base in Eastern Europe, Asia and South America. Marel Food Systems’ shareholder base has been Finally, I want to thank all the people at Marel Food significantly broadened in the past two years with a Systems for their effort and determination in fulfilling our public offering in 2006 and a private placement in 2007. goals. I am also grateful for the support that investors are The private placement was targeted toward pension showing toward our vision. funds and other long-term investors. In addition, the previous owner of Scanvaegt, the Grundtvig family, showed their strong belief in our prospects by taking Marel shares as a significant portion of the purchase price of Scanvaegt in 2006. The financing for the planned Stork Food Systems Árni Oddur Þórðarson acquisition is fully secured by equity and long-term debts Chairman of the Board (5-9 years). After clearance from antitrust authorities, Marel 7


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    CEO’s address The year 2007 was characterized by extensive integration by increasing activities in key growth markets in South activities involving Marel, AEW Delford and Scanvaegt, America, Eastern Europe, Asia and Australia where of which the latter two were acquired in 2006. The excellent opportunities exist for the company’s solutions. companies’ worldwide sales networks merged under In 2007, Marel Food Systems secured major contracts with the Marel Food Systems corporate structure, and it was many of the largest fish, meat and poultry processors in gratifying that despite major organizational changes, the the world. These large contracts for processing solutions company’s turnover increased at a rate greater than the are a result of long-term sales and marketing efforts that average rate of growth in its market sector, resulting in the will support future organic growth. company increasing its market share. At the start of 2006, Marel Food Systems introduced an Customers ambitious strategy of tripling the company’s turnover in Marel Food Systems works hand in hand with all major the following 3-5 years. Work on this vision continued food processing companies on all continents to produce systematically during 2007, and with the agreement last the best possible solutions for varying processing needs. November to acquire Stork Food System, which is awaiting Cooperation with customers is an important issue when approval of competition authorities, Marel Food Systems developing new solutions, as the company constantly has achieved its growth target in a much shorter time monitors current and emerging trends and requirements than projected. The company’s expansion has created the within each industry sector. Our customers must respond necessary conditions for achieving significant synergistic to changes in their customer’s requirements, and we benefits by improving utilization of product development diligently monitor all current and potential changes in investment, and by lowering costs through rationalization. order to give customers a competitive edge by increasing yield, throughput and efficiency, and thereby maximizing Operations profits. Turnover increased by about 39% in 2007. Profit from operations (EBIT) was EUR 10 million, an increase Product Development of 33% from the previous year. Net profit was EUR 6 One of the primary factors in a successful operation is million compared with EUR 0.2 million the year before. progressive product development. Marel Food Systems Performance was shaped by a wide-ranging integration is committed to annually investing approximately 6% process that involved direct one-time costs, but primary of revenues in product development to strengthen its emphasis focused on internal restructuring tasks rather leading position on the market and fulfill customer needs. than the traditional emphasis on new products and This commitment in investment is significantly higher marketing activities. than the industry average, and is intended to support ongoing strong organic growth of the company. Product Markets standardization was one of the objectives for 2007, and it Key markets have been North America and Europe, and proved to be a successful factor in increasing efficiency, in 2007 the company continued to reinforce operations lowering production costs and strengthening the in these areas. Effort also focused on market expansion company’s competitive position. 8


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    Integration activities spread and more active trading. The end-of-day spread in The acquisition of AEW Delford in April and Scanvaegt in 2007 was 0.68%. Marel Food Systems paid a dividend of August 2006 has doubled the company’s annual turnover. 20% of nominal value in 2007. The companies have a very similar product range and operate on the same markets. It was therefore necessary Prospects to integrate operations with the aim of improving and Intensive product development and ongoing work over coordinating customer services and clarifying employee the years to bolster the company’s marketing operations positions, while improving performance of the companies. have placed it in a strong competitive position. Prospects on the company’s primary markets are currently The companies’ worldwide sales networks merged under satisfactory. the Marel Food Systems umbrella. Economies of scale improve customer services while reducing operating costs Prospects for the company’s operations are good. The and capital commitments. consolidation of Marel, Carnitech, AEW Delford and Scanvaegt has created a company with a broad product During the integration a new organizational structure range, strong marketing network, outstanding service was implemented for Marel Food Systems and its network and a highly competitive position in various subsidiaries to ensure the best possible use of resources product categories. The economy of scale of the new of all companies within Marel Food Systems. In 2007, the company is considerable, including increased sales and operation in Iceland was separated operationally from the cross-selling. corporate function by establishing the subsidiary Marel ehf on 1 July 2007, and was separated financially on 1 January A large part of the integration process has returned the 2008. intended results, but it is apparent that several tasks have had a negative impact. This has involved both operational These changes to Marel Food Systems’ organizational units in the sales network and product categories. Work is structure will generate additional value for stakeholders in progress to restructure these tasks and thereby ensure and improve customer services. At the same time, they will satisfactory results. improve communication links and financial efficiency with Marel Food Systems. The company’ objective of achieving at least a 10% operating profit (EBIT) remains unchanged, and it is now The fundamental goals for the integration work are the projected that this will be achieved in 2009. It is expected following: that operating profit for 2008 will be about 8% of turnover. • A culture of everyone working for the same company During the first half of 2008, the projected operating profit • To double the number of new products with unchanged will be somewhat less than for the year as a whole. These investment in product development projections do not include any impact from Stork Food • Improve customer services at a better profit Systems. Continued strong internal growth is anticipated, • Lay the foundation for strong internal growth as are good results from Stork Food Systems’ core activities. • Create an interesting and challenging work environment for our employees Exciting times lie ahead where primary emphasis will be on improved profitability and dynamic internal growth Stock development based on product development and marketing activities in One of the main corporate goals is to maximize the emerging markets. company’s stock value. A 32.5% increase in stock value occurred in 2007, on top of an 18.5% increase in 2006. The group’s stock turnover rate on the OMX Nordic Exchange in 2007 was 25.34%. Market-making is provided by Landsbankinn and Saga Capital, which has led to a lower Dr. Hörður Arnarson Chief Executive Officer 9


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    To shareholders 11


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    CEO and Board of Directors Chief Executive Officer Dr. Hörður Arnarson Education: Engineering, Ph.D., 1990, Technical Hörður Arnarson joined Marel Food Systems hf in 1985, two years after University of Denmark. Electronic Engineering, the company was founded, as a project manager. In 1994, he became B.Sc., 1985, University of Iceland. Director of Product Development, and Director of Production in 1998 Holdings in Marel Food Systems, including those until 1999 when he became the CEO of the company. of financially related parties: 1,676,244 shares. Chairman of the Board Árni Oddur Þórðarson Árni Oddur is the CEO of Eyrir Invest ehf, and has extensive international Education: MBA from IMD in Switzerland 2004. business experience. He has served on the boards of various businesses Cand. Oecon./Business Administration from the through the years. Before co-founding Eyrir Invest he was head of University of Iceland 1993. Corporate Finance and Capital Markets in Búnaðarbanki Íslands, which Elected: 2005 later merged with Kaupthing Bank. Árni Oddur has been a Board member Holdings in Marel Food Systems, including those of Ölgerðin hf, Iceland’s largest consumer products distributor, from 2003, of financially related parties: 126,199,541 shares. and on the Advisory Board of Arctic Ventures, a high-tech fund based in Stockholm, since 1999, among others. Board Members Arnar Þór Másson Arnar is the Deputy Director General of the Department of Financial Education: Political Science with an M.Sc. in Management at the Ministry of Finance. He has worked at the Ministry Comparative Politics from the London School since 2001 where he specializes in public sector reforms and management. of Economics and Political Science 1997. Alongside his work at the Ministry, Arnar is an Adjunct at the Department BA in Political Science from the University of Political Science at the University of Iceland. Arnar does not sit on the of Iceland, 1996. board of any other company than Marel Food Systems hf. He was on the Elected: 2001 boards of Hjaltadalur Heating Utility sf from April 2003 until November Holdings in Marel Food Systems, including those 2005, and the Weights and Measures Office from April 2003 until July 2005. of financially related parties: 0 shares. Friðrik Jóhannsson Friðrik joined Iceland Investment Corporation (IIC) at the end of 1986 as Education: Cand. Oecon. University of Iceland, CFO, and became CEO in 1989. IIC was acquired by Skandia in 1993, and 1983, Certified Public Accountant 1987. Friðrik became CEO of Skandia´s operation in Iceland, which comprised Elected: Alternate 1997-2004. Board member non life insurance, life insurance, securities brokerage, asset management since 2004. Chairman of the Board from the AGM and mutual and private pension funds. In 1997 he became the Managing 2005 until October 2005. Director of Burðarás Investments. Friðrik became CEO of Burðarás, an ICEX Holdings in Marel Food Systems, including those listed investment company in 2004, and the CEO of Straumur Burðarás of financially related parties: 400,000 shares. Investment Bank in 2006. Friðrik retired from his position at the bank in June 2007 and is currently an active investor in various financial markets. Friðrik has served as a Board member of various companies, for example he served as the Chairman of Board of the Icelandic Stock Exchange from February 2006 until it merged with OMX in November 2006. Since 2007, he has been Chairman of Board of Brú Venture Capital. 12


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    T O S H A R E H O L D E R S Helgi Magnússon Helgi is the largest owner, Chairman of the Board and CEO of Hofgardar Education: Business Administration from the Holding ehf and Harpa Holding ehf. Helgi is the Chairman of Flügger Iceland University of Iceland, 1974. CPA 1975. Ltd, Chairman of the Federation of Icelandic Industries, member of the Elected: 2005 Board of Directors and the Executive Board of the Confederation of Icelandic Holdings in Marel Food Systems, including those Employers. Helgi is also on the Board of the Blue Lagoon hf, Vice-chairman of of financially related parties: 4,786,426 shares. the Pension Fund of Commerce and Njardvik Ship-Yard Ltd. Helgi has been a Board member of Glitnir hf, Framsyn Pension Fund and Icelandic Chamber of Commerce. Margrét Jónsdóttir Margrét is the CFO of Eyrir Invest ehf. Previously, Margrét was the Director Education: Master of Accounting and Auditing of the finance department at Edda Publishing hf from December 2001 from the University of Iceland, 2006, until October 2002. She was Director of Finance at Kreditkort hf from BA in Business Administration from University August 2000 until December 2001, and Manager of Accounts and of Iceland, 1983. Planning at Fjárfestingarbanki Atvinnulífsins hf (FBA), and Director of Elected: 2006 Finance at the Industrial Loan Fund (FBA predecessor), from September Holdings in Marel Food Systems, including those 1988 until June 2000. of financially related parties: 78,008 shares. Lars Grundtvig Lars joined the family business, Scanvaegt A/S, in 1959, which was founded Education: Bachelor of Commerce by his grandfather in 1932. In 1969, Lars and his father transformed the Elected: 2007 company from a small business selling mechanical scales into a producer of Holdings in Marel Food Systems, including those high-tech weighing and processing equipment for the food industry. In 1974 of financially related parties: 52,200,943 he became the Managing Director, and in 1993 he took the office of working Chairman. In 2006, Scanvaegt International A/S was sold to Marel Food Systems hf. Lars and his sons established the investment company Grundtvig Invest A/S, and as its Managing Director, he sits on the boards of JJ Steel Holding A/S, Anker Andersen A/S, Lichtenbourg Technologies bv, Black Lily A/S and Grundtvig Invest A/S. Board of Directors and CEO of Marel Food Systems hf, from left: Margrét Jónsdóttir, Lars Grundtvig, Árni Oddur Þórðarson, Chairman, Arnar Þór Másson, Helgi Magnússon and Hörður Arnarson, CEO. Board member Friðrik Jóhannsson was absent. 13


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    T O S H A R E H O L D E R S Organizational structure Marel Food Systems consists of five product-oriented Access by the company’s sales network to specialized business units, an integrated sales and service network consultancy in the appropriate industry, or the appropriate and a corporate structure. The fundamental principles product category, ensures the best possible solution in the company comprise a culture of innovation and for the customer. Service is provided everywhere the development, efficiency and responsiveness to customer company sells its products. In addition, the sales and needs. service network operates over 50 agents and distributors worldwide. The business units are AEW Delford Ltd. in UK, Carnitech A/S in Denmark, Marel ehf in Iceland, Scanvaegt A/S in Marel Food Systems corporate has the primary roles of Denmark and Marel Food Systems s.r.o. in Slovakia. optimizing performance and implementing synergies Together the units supply a complete range of processing across the business units and sales & service network, as equipment to all sectors of the food processing industry. well as ensuring the units operate as coordinated entities. Most of the products are manufactured in Iceland, Employees are mainly located in Denmark, Iceland and Denmark, Slovakia and the UK. Smaller production the UK. facilities are operated in Singapore, Brazil and the USA. There are three main functions in corporate: Marel Food Systems operates a global network of sales • Core function regarding finance, taxes, investor and service units. The network consists of 24 units that relations, legal matters, etc. are set up for handling sales and service of the company’s • Policy and influencing roles regarding strategy and products around the world. control processes. • Service units: payroll, training, IT support, patents, etc. Corporate Iceland Sales and service units Business units Marel Food Systems (Australia) Marel Food Systems (Norway) Marel Food Systems (Benelux) Marel Food Systems (Poland) Marel Food Systems (Brazil) Marel Food Systems (Portugal) Iceland Marel Food Systems (Chile) Marel Food Systems (Russia) Marel Food Systems (China) Marel Food Systems (South Africa) Denmark, USA and Singapore Marel Food Systems (Denmark) Marel Food Systems (Spain) Marel Food Systems (France) Marel Food Systems (Sweden) Denmark Marel Food Systems (Germany) Marel Food Systems (Thailand) Marel Food Systems (Iceland) Marel Food Systems (UK) UK Marel Food Systems (Ireland) Marel Food Systems (Uruguay) Marel Food Systems (Italy) Marel Food Systems (USA) Slovakia Marel Food Systems (New Zealand) Marel Food Systems (Viet Nam) 14


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    Corporate governance Icelandic law and the company’s Corporate Governance The AGM is advertised publicly with at least one-week’s determine the duties of the various bodies within notice, and details about the meeting are available on the Marel Food Systems. Corporate governance defines the company’s website, www.marelfoodsystems.com, and way in which the company is directed and controlled. at the OMX Nordic Exchange in Iceland’s website, www. Furthermore, strong emphasis on corporate governance omxgroup.com/nordicexchange. improves the quality of all internal procedures and infrastructure in the company, which results in increased Board of Directors confidence from shareholders and market participants. The The Board of Directors of the company is the supreme corporate governance policy is based upon the Guidelines authority in the affairs of the company between concerning corporate governance issued by the OMX shareholders´ meetings. Nordic Exchange, Confederation of Icelandic Employers The Board of Directors is elected by shareholders at the and Iceland Chamber of Commerce. AGM for a term of one year. The Board currently comprises Insider Information six members. At the company’s AGM on 8 March 2007, In accordance with statutory law, the company complies the members of the Board of Directors were re-elected for with the rules of the Financial Supervisory Authority – the term of one year. An additional member to the Board Iceland (FME) on the handling of inside information and was elected in accordance with changes to the Articles of insider trading. The job and functions of an appointed Association of the company to increase board members to Compliance Officer, who monitors and supervises the six. Mr. Lars Grundtvig, CEO of Grundtvig Invest A/S, was handling of insider information, is a part thereof. elected to the Board. Moreover, the company has in place in-house rules on the Compensation to the Board of Directors is decided at the handling of inside information and insider trading. Among AGM. For 2007, the agreed monthly remuneration was other things it is provided for that a primary insider may EUR 2000 for each Board member and EUR 6000 for the not trade in the securities of the company during the Chairman of the Board. period from the end of a financial period until financial The Board is responsible for the organization of the reports are disclosed, regardless of whether they possess company and for ensuring the proper conduct of its inside information or not. operation at all times. The Board of Directors shall decide Shareholders’ meetings on all matters regarded as extraordinary or of major consequence. The same applies to major borrowing Shareholders’ meetings are the supreme authority in Marel requiring mortgaging the company’s property. The Board Food Systems’ affairs (within the limits established by the shall establish goals for the company in accordance with company’s articles of association and statutory law). The the company’s objectives and shall formulate the policy Annual General Meeting (AGM) is scheduled once a year and strategy required to achieve these goals. and other shareholders’ meetings are convened when necessary. All matters brought before a Board meeting shall be All shareholders, as well as their representatives, company decided by majority vote, provided that the Board meeting auditors and the Chief Executive Officer have the right to has been lawfully convened. In the event of a tie vote, the attend shareholders’ meetings. At shareholders’ meetings, Chairman of the Board casts the deciding vote. However, each share carries one vote and motions are passed by important decisions may not be taken unless all members majority vote unless otherwise stated in the company’s of the Board have had the opportunity to discuss the Articles of Association. matter, if possible. The Marel Food Systems AGM is held before the end of Board meetings shall normally be called on a monthly August each year, and for 2008 is scheduled for 7 March. basis. Members of the Board elect a Chairman and vice- 15


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    T O S H A R E H O L D E R S chairman from their own ranks. The signature of the Board the Articles of Association. Daily operations do not include is required to bind the company. The company signature is matters that are irregular or of major significance. The CEO written by the Board and only the Board may grant powers shall ensure that the accounts and finances conform to law of procurement. and accepted accounting standards, and that company assets are handled in a reliable manner. Furthermore, the The Chairman of the Board of Directors is responsible for CEO hires and discharges all company employees. The CEO leading the Board, facilitating its work and ensuring that is obligated to abide by all Board directives. He is required the Board is capable of operating in the interests of Marel to provide the Board of Directors and auditors with all Food Systems shareholders. The Chairman also serves as information requested. the Board’s spokesperson. No unusual business has been conducted between Marel Board committees Food Systems and the company’s Board of Directors. The Board’s work is supported by its committees: Board members do not have any buy or put options in the Compensation Committee and Auditing Committee. company. No member of Marel Food Systems Board has Members of the Compensation Committee are Arnar Þór been convicted of fraud, gone bankrupt, been taken into Másson, Árni Oddur Þórðarson and Friðrik Jóhannsson. receivership or been indicted. Its field of work involves negotiating wages and other benefits for the CEO and senior management, and framing Comply or explain the company’s wage policy including wage incentives and According to the Guidelines, it is preferable that the stock options rights for company shares. majority of the Directors are independent. In 2007, the Members of the Auditing Committee are Friðrik Board consisted of two independent members and four Jóhannsson, Helgi Magnússon and Margrét Jónsdóttir. non-independent members. The Board of Directors Its field of work includes monitoring Marel Food Systems’ complied with the Guidelines in all respects during the financial status, evaluating the company’s internal year. monitoring system and risk management system, evaluating management reporting on finances, evaluating Board meetings whether laws and regulations are followed, and evaluating The Board of Directors convened 14 times in 2007. The the work of the company’s statutory auditors. average attendance at the Board Meetings was 86%. The Board is provided with a report in advance of each Board Auditors and accounting meeting and, in addition, a comprehensive monthly report An auditing firm shall be elected at the AGM for a term of of Marel Food Systems’ operations and market conditions. one year. The auditor, however, shall not be a member of Board members are informed about all significant matters the Board of Directors, CEO or employee of the company immediately. and is not allowed to own shares in the company. The A Board member shall only act according to his own auditor shall examine the company’s annual accounts in conviction, not on the instructions of those electing him. accordance with generally accepted accounting standards, Immediately following the Annual General Meeting, the and shall for this purpose inspect account records and Board shall allocate responsibilities among themselves. other material relating to the operation and financial position of the company. The auditor shall at all times Together, the Board members bring a valuable and have access to all books of accounts and documents of the balanced range of experience as they have all held or hold company. senior positions in professional and public life. Profiles of the Board members are listed on pages 12-13. PriceWaterhouseCoopers hf was elected as the company’s auditor at the AGM on 8 March 2007. Auditors on its behalf Chief Executive Officer are Þórir Ólafsson, State Authorized Public Accountant, The Board of Directors appoints a Chief Executive Officer and Kristinn Freyr Kristinsson, State Authorized Public (CEO) and decides the terms of his employment. The CEO Accountant. They have audited and signed without is responsible for daily operations in accordance with reservation Marel Food Systems’ consolidated financial those directives that he has been given by the Board, or by statements for the years 2007 and 2006. 16


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    Risk management Marel Food Systems’ activities expose it to a variety of Liquidity risk financial risks: market risk including foreign exchange Prudent liquidity risk management implies maintaining risk and price risk, credit risk, liquidity risk, cash flow risk sufficient cash and marketable securities, the availability of and fair value interest-rate risk. The company’s overall risk funding through an adequate amount of committed credit management program focuses on the unpredictability facilities, and the ability to close out market positions. of financial markets and seeks to minimize potential Due to the dynamic nature of the underlying businesses, adverse effects on the company’s financial performance. the company aims to maintain flexibility in funding by The company uses derivative financial instruments to keeping committed credit lines and current financial assets hedge certain risk exposures. Risk management is carried available. out within the company where applicable under policies approved by the Board of Directors. The company will Cash flow and fair-value interest rate risk continue to improve its risk management guidelines even The company’s income and operating cash flows are further in 2008 by centralization of the company’s financial substantially independent of changes in market interest risk management function. rates. The interest rates of finance leases to which the company is lessor or lessee are fixed at inception of the Foreign exchange risk lease. These leases expose the company to fair-value The company operates internationally and is exposed interest rate risk. The company’s cash-flow interest rate risk to foreign exchange risk arising from various currency arises from long-term borrowings. Borrowings issued at exposures, primarily with respect to euros. Financial variable rates expose the company to cash-flow interest exposure is partly hedged within the company’s general rate risk, while borrowings issued at fixed rates expose it to policy and within set limits. Entities in the company use fair-value interest rate risk. forward contracts to manage their foreign exchange risk The company manages its cash-flow interest rate risk by arising from future commercial transactions, recognized using floating-to-fixed interest rate swaps. Such interest assets and liabilities. Translation risk arising from the rate swaps have the economic effect of converting company’s financial currency is not hedged. borrowings from floating rates to fixed rates. The company raises long-term borrowings at floating rates, and swaps Credit risk them into fixed rates that are lower than those available The company minimizes credit risk by monitoring credits if the company borrowed at fixed rates directly. The risk, granted to customers, and assigns collateral to cover measured as the potential increase in interest paid during potential claims. The company has policies in place to the coming year based on a defined move in interest rates, ensure that sales of products and services are made to is monitored and evaluated regularly. customers with an appropriate credit history, and products are not delivered until payments are secured. There are also policies in place that limit the amount of credit Insurance policies The company maintains global and local insurance exposure to any one financial institution. programs. The coverage comprises property damage, business interruption, product and public liability, marine and transit, and director and officers. The company believes that its current insurance coverage is reasonable. 17


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    T O S H A R E H O L D E R S Corporate social responsibility At the heart of our commitment to Marel Food Systems Our main projects have been the support of a children’s stakeholders is our endeavor to deliver sustainable, science museum – where our employees have taken pride superior results as the product of our business practices. in designing and building numerous useful products Marel Food Systems has defined areas to focus energy in – various youth innovation contests on elementary order to maximise benefits for society, for stakeholders and university levels, design competitions and various and for the company. Our commitments justify that we go publications that aid in teaching science and innovation. beyond minimal, legal requirements when shaping our Furthermore, we have become the supporter of a full-time future business environment. The Guidelines for Multi- teaching position at the elementary level that focuses on National Enterprises, as produced by the Organisation for increasing awareness of science and innovation. Economic Co-operation and Development (OECD), is our By providing financial resources, as well as the knowledge reference document in this respect. and time of our employees, we are able to work closely with local municipalities to strengthen science teaching, as Supporting the future well as support major innovation and science events. During 2007, Marel Food Systems continued its long-term support of science education on all educational levels. Many of these projects have helped future scientists With this support, the company strives to enhance and along the path of science and innovation. We are proud enrich innovation, science and mathematical education that our efforts have played a role in nurturing upcoming in the communities where it operates, as well as increase generations, which inevitably leads to further excellence in awareness of the value of a strong scientific education. science exploration and research. 18


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    Human resources Marel Food Systems employs over 2200 people in 24 Training and development countries worldwide. The largest number of employees, Extensive integration and restructuring work has taken over 800, is located in Denmark. place within the field of training and development. All the business units now run an aligned strategy with focus on Global mission, goals and objectives knowledge transfer within the global sales and service One of Human Resources’ key roles is providing support to network. Our training academy has set up an ambitious Marel Food Systems’ overall business model by positioning training and developmental program, where all business people at the heart of corporate strategy. This involves units focus on cross-training in connection with our main initiating means to empower employees, thereby helping product groups, as well as sales & service techniques. them reach their full potential. It is important to create an environment that nurtures, Number of employees, average per year supports and motivates employees, that creates an 2,500 atmosphere where people are aware and supportive of the company’s mission and objectives, and are given the 2,000 flexibility to participate in achieving them on their own 1,500 terms. Marel Food Systems’ global Business Units have diverse 1,000 cultural backgrounds, yet they work as a unified whole 500 in a great many aspects of operations. A unified Human Resources mission for the business units was created last 0 year to underline the importance of striving to carry out 2002 2003 2004 2005 2006 2007 Year end 2007 the same mission. We need to recognize the importance of thinking globally Number of employees by continent at year-end 2007 while acting locally – and respecting different cultures Oceania while strengthening shared values. This has already led to South America 1% 2% 0% Africa feelings of shared pride, as we all can identify with being Asia 5% part of a company that thrives on the pioneering spirit of North America innovation. 9% 82% Europe 19


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    T O S H A R E H O L D E R S Shares and shareholders Share performance TO P 10 SHAR E HO L DE R S AS O F 31 DE CE M B E R 2007 Marel Food Systems hf (symbol: MARL) shares are listed on the OMX NORDIC EXCHANGE, and are included in the Name No. of shares % OMX Iceland 15 and OMX Nordic Mid-Cap Indices, among Eyrir Invest ehf 126,170,437 31.25 others. The share price rose from ISK 77 at year’s end 2006 Landsbanki Íslands hf, aðalstöðvar 84,845,640 21.01 to ISK 102.00 at year’s end 2007, an increase of 32.5%. Grundtvig Invest ApS 52,200,943 12.93 During the same period the OMXI-15 index decreased by Atorka Group hf 24,194,067 5.99 3.2%. The year’s highest end-of-day share price was ISK Lífeyrissjóðir Bankastræti 7 10,884,141 2.70 Lífeyrissjóður verzlunarmanna 9,686,888 2.40 102.5, and the lowest end-of-day share price was ISK 72.5. Sameinaði lífeyrissjóðurinn 5,585,750 1.38 Ingunn Sigurðardóttir 5,430,498 1.34 Share capital Helga Sigurðardóttir 5,348,749 1.32 Marel Food Systems hf issued 36.7 million new shares Súsanna Sigurðardóttir 5,308,774 1.31 in 2007: 29.8 million were issued in relation to the Total 329,655,887 81.64 acquisition of Stork Food Systems, 3.7 million were issued Others 74,129,810 18.36 in conjunction with establishing a new market-maker and Registered share capital 403,785,697 100.00 3.2 million were issued to fulfill an employee stock-option agreement. Shareholders When introducing the acquisition of Stork Food Systems The number of shareholders in Marel Food Systems was on 29 November 2007, it was announced that the recorded on the shareholders register to be 2,038 at year- company intends to raise EUR 147 million by issuing new end 2007, compared to 2,975 shareholders at year-end shares to finance the acquisition. Following approval by 2006. the Board of Directors, Marel Food Systems increased its As of 31 December 2007, Marel Food Systems holds common shares by 29.8 million, or 7.97% of total share 3,436,009 treasury shares, or 0.85% of total share capital. capital, with a private placement that concluded on 10 December. The company raised EUR 30 million, and at the same time strengthened its shareholder base. The private Liquidity of shares An agreement was concluded with Saga Capital placement was managed by Landsbanki Íslands hf. Marel regarding market-making for issued shares. The purpose Food Systems hf is planning an offering of new shares to of such agreements is to improve liquidity and enhance pre-emptive rights holders totaling EUR 120 million in transparent price formation in the company’s shares on 2008. the OMX Nordic Exchange. Marel Food Systems has also At year-end, Marel Food Systems hf shares totaled had a market-making agreement with Landsbanki Íslands 403,785,697. since 2006. 20


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    Shares in Marel Food Systems hf were traded 2,038 times in 2007 for a total market value of ISK 8.2 billion (up from ISK 5.8 billion in 2006), which corresponds to a turnover rate of 25.34%. The average end-of-day spread of Marel Food Systems hf was 0.68%. The market value of the company at year-end 2007 was ISK 41.18 billion. D I S T RI BUTI O N O F SH A R ES A S O F 3 1 DEC E M B E R 2007 Number of Shares Shareholders % Shares % 1 9,999 1,474 72.33 6,085,945 1.51 10,000 99,999 461 22.62 13,218,529 3.27 100,000 199,999 42 2.06 5,835,658 1.45 200,000 799,999 36 1.77 13,675,796 3.39 800,000 1,399,999 3 0.15 3,018,033 0.75 1,400,000 2,999,999 7 0.34 13,076,740 3.24 3,000,000 9,999,999 10 0.49 50,579,768 12.53 10,000,000 99,999,999 4 0.20 172,124,791 42.63 100,000,000 + 1 0.05 126,170,437 31.25 2,038 100.00 403,785,697 100.00 Dividend Marel Food Systems hf paid a dividend of 20% of the nominal share value, which corresponds to ISK 0.2 per share in 2007. Share options to key employees Three share-option programs are currently in place for employees at Marel Food Systems. Excercisable Number of shares (in thous.) Exercise price (ISK) Exercisable in Option 1 11,743 70 2009–2011 Option 2 2,000 74 2008–2010 Option 3 1,500 74 2009–2011 Option 4 1,315 92 2010–2012 Total 16,558 MA RE L F OOD SYST EM S STO C K PR I C E COM PAR E D TO THE O M XI-15 IN DE X Marel Food Systems OMXI-15 21


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    T O S H A R E H O L D E R S Investor relations Marel Food Systems hf places great emphasis on providing Investors meeting investors, analysts and other stakeholders with timely and Marel Food Systems places great importance on accurate information about the company. This approach developing its relations with existing and potential is fundamental to achieving a fair market price for the investors. This is achieved by several means, most notably company’s shares. through regular investors meetings and participation by the Chairman of the Board and/or the CEO of Marel Food Information policy Systems in various functions. The cornerstone of the company’s information policy is to provide current and potential investors with equal access Investors, potential investors and financial analysts to consistent and transparent data, in as much detail as is are also invited to the headquarters of Marel Food commercially sensible. In order to ensure equal access, all Systems in Garðabær, Iceland where management has information is published simultaneously in Icelandic and the opportunity to present an overview of company English. operations. During 2007, these meetings focused primarily on recently announced financial results, and the Through efficient reporting, Marel Food Systems ensures achievement of the long-term goal of acquiring Stork Food that all necessary information concerning the progress of Systems, which was announced at a meeting in November the company is clear, and contributes to the correct price 2007. During that meeting, Marel Food Systems introduced formation of the company’s shares. for the first time the results via a webcast, which was All price sensitive information, regulatory announcements available in real-time on the company website. about Marel Food Systems and announcement regarding performance and future prospects are published in a timely manner, initially on the website of the OMX Nordic Exchange in Iceland, www.omxgroup.com/nordicexchange, and subsequently on Marel Food Systems’ website, www. marelfoodsystems.com. Financial results are issued quarterly in accordance with the requirements of the OMX Nordic Exchange in Iceland. 22


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    www.marelfoodsystems.com Publication schedule for 2008-2009: In addition to Marel Food Systems regulatory Reports announcements, the company’s website contains detailed 6 May 2008 1st Quarter information about the company, its history, operations and 12 August 2008 2nd Quarter activities. Current and past press releases, presentations 4 November 2008 3rd Quarter and annual reports are archived on the website and 10 February 2009 4th Quarter available for download, and the company’s current and 10 March 2009 Annual General Meeting historic share prices are available for review against key indices. The company announced in 2007 a new corporate Investors relations contact: website, www.marelfoodsystems.com, as a part of the new Guðrún Björg Birgisdóttir corporate identity. Corporate Legal Counsel Tel: +354 563-8282 Annual report Email: gudrun.bjorg.birgisdottir@marel.com The Marel Food Systems Annual Report is an important and investors@marel.com communication tool, and the company strives to provide a balanced picture of all key aspects of the business, both financial and non-financial information. A hard copy of the Annual Report is available upon request by writing to investors@marel.com. Downloadable versions of current and past annual reports are available on the company’s website. Since 2005, an interactive version of reports are available on the website, which facilitates page by page downloads and printing. 23


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    Development 2007 25


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    D E V E L O P M E N T 2 0 0 7 Acquisitions In November 2007, after approximately two years of to undertake challenges within a market area that is negotiations, Marel Food Systems announced it had constantly expanding. entered into an agreement to purchase the Stork Food When the transaction is finalized in 2008, subject to Systems division of Stork NV. The acquisition price was clearance from antitrust authorities, Marel Food Systems will EUR 415 million on a debt and cash-free basis. approximately double its revenues. This is in addition to the Marel Food Systems and Stork Food Systems have company having more than doubled in size the previous enjoyed successful co-operation in the development and year after the acquisition and integration of Scanvaegt and marketing of high-tech equipment for the food processing AEW Delford. This growth rate is considerably faster than industry for almost a decade. This co-operation has the development strategy unveiled at the 2006 Annual brought customers and shareholders of both companies General Meeting projected, which was to triple the added value and offered employees the opportunity company’s turnover within 3-5 years. Composition of the Global Meat Growth of the Global Meat Market and Poultry Meat Market 100% Million 300 7% 7% Tons 24% 75% 31% 225 50% 39% 150 39% 25% 75 30% Other 23% Beef 0% Pork 0 1990 2010 Poultry 1980 1990 2000 2010 Feed-to-meat conversion rates Months to market 8 24 18-24 20 months 6 7:1 16 4 5:1 12 6-12 8 months 2 5-7 2:1 4 weeks 0 0 Beef Pork Poultry Beef Pork Poultry The amount of feed required in order to produce 1 kg The length of time until each species of meat differs greatly between species. is ready for processing. 26


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    Stork Food Systems Prospects Stork Food Systems, headquartered in Boxmeer, the Combined, Stork Food Systems and Marel Food Systems Netherlands, is a global provider of advanced solutions will become firmly established as a major global for the poultry, red meat and further processing industry. innovator of food processing equipment and solutions Stork Food and Dairy Systems – part of the Stork Food with an estimated 15-16% market share. Changes in Systems Group – manufactures products for the fast their respective markets will be minimal due to years of growing dairy, juice, food processing and pharmaceutical partnership, and both operations will be able to ensure segments, and operates companies in the Netherlands, stable operations in their core fields while continuing close France, USA, Spain and Brazil. collaboration with customers. The overall turnover of Stork Food Systems in 2007 was The biggest markets for both of the companies are at EUR 370 million, of which EUR 310 million comes from the present in Northern Europe and North America, but in the core activities in poultry, meat and further processing. In near future focus will shift to new markets in Asia, Eastern the last four years, annual organic growth of core activities Europe and South America. The annual growth rate in has been 14%, driven by strong product development and these regions is projected at 7% over the next five years, expansion in emerging markets. which will create opportunities to optimize production capacity and technological efficiency. Post acquisition In the next phase, Marel Food Systems’ emphasis will be on internal growth and increased profitability, with an objective of operating profit EBIT reaching10% of turnover by year-end 2008. After the acquisition, the company will be able to offer a powerful combination of equipment and systems for primary, secondary and further processing, creating more value for customers with innovative equipment and solutions. The company will continue its strategy to grow as an important innovator in the food processing industry with a strong focus on research and development. The businesses of the two companies are complementary with no overlapping in their product portfolios, which will simplify the upcoming integration process. Co-operation between Marel Food Systems and Stork Food Systems has been in such core activities as the development and production of turnkey solutions for the poultry processing industry: Stork Food Systems’ strength in mechanical design is supported by Marel Food Systems’ innovative software and electronics systems. Based on this experience, the two companies have an excellent cultural fit. 27


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    D E V E L O P M E N T 2 0 0 7 Opportunities and outlook In February 2006, Marel Food Systems presented a clear vision of external and internal growth. The first phase 1.000 focused on implementing strong external expansion through strategic acquisitions/mergers of two to four key 750 companies that had good growth potential, and strong Million EUR integration compatibilities with Marel Food Systems. The 500 aim was to attain a 15-17% market share in 2008-2010, and a turnover of EUR 400-500 million. The second phase 250 focused on strong internal growth by developing best products and services, with the aim of achieving an annual turnover of EUR 1000 million by 2015. 0 2005 2006 2007 2008-2010 2015 The purchase of AEW Delford and Scanvaegt in 2006 quickly brought the company close to the goal of the first Strong external growth Strong internal growth 3-5 year strategy phase. With the acquisition of Stork Food Systems, the goal of tripling turnover has been exceeded in a much Strategic goals set in 2006 shorter timeframe: pro forma revenues for 2007 are EUR Stork Food Systems Scanvaegt 660 million, or a fivefold increase from Marel Food System’s AEW Delford 2005 turnover. Marel (incl. Carnitech), Marel Food Systems after 2006 Marel Food System’s projected market share today, including Stork Food Systems, is approximately 15-16%. processes, Marel Food Systems has become a leader in In phase two, the focus shifts to strong internal growth developing equipment for the global food processing by developing the following key market dimensions: industry. industries, geographical markets, products and solutions, service and spare parts. The critical mass is now in place Senior management of Marel Food Systems expects that to enter emerging markets in Eastern Europe, Asia and it will be able to achieve the company’s goal of EUR 1000 South America where the annual growth rate is expected million in turnover over the next 7 years with internal to be 7% over the next five years. Through these growth growth. 28


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    Integration The primary goal of integration is to improve productivity, of Marel Food Systems. In addition, work focused on synergy and teamwork, thereby boosting the efficiency encouraging creativity, leadership and teamwork, as well and effectiveness of the processes that run a business. This as independent thinking, which opens up numerous has now been achieved as the integration of AEW Delford possibilities for the company and its employees to grow in the UK, Scanvaegt and Carnitech in Denmark and Marel and prosper in harmony. ehf in Iceland concluded in 2007. The process will fully Other integration goals include doubling the number of impact Marel Food Systems’ performance in 2008. new products with unchanged investment in product Marel Food Systems comprises five business units, development, improving customer services while a network of sales and service units and a corporate increasing profitability and expanding the value-added structure. The extensive task of integration concentrated chain. In addition, new products and product categories on rationalizing all elements of the business units’ will enter the mix and new market possibilities will present production, product development, purchasing and service themselves, thereby diversifying opportunities for growth. operations, as well as the sales and marketing network. For example, sales offices decreased from 45 to 24, and Further integration several new distribution and service operations joined In November 2007, Marel Food Systems announced it the company’s global net. This was achieved through the had concluded an agreement to acquire the Stork Food acquisition of companies that had been working in close Systems division of Stork NV. Over the years, Marel Food association with the various business units, as well as the Systems and Stork Food Systems have successfully co- establishment of new entities. operated in developing and producing food-processing solutions. When the transaction is finalized in early 2008, Integration work also involved implementing a strategy Marel Food Systems will approximately double in size. This of creating an outstanding workplace, where everyone will bring with it a new round of integration, and years of understands and appreciates that they work for the working cooperatively will help ensure that this work will same company, where the strengths of each company be successful. have been developed to support the vision and growth 29


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    Performance 2007 31


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    P E R F O R M A N C E 2 0 0 7 Financial performance Operating revenues and expenses Marel Food Systems’ operating revenue in 2007 amounted expenses related to research and development, decreased to EUR 289.8 million, compared to EUR 208.7 million in in relation to sales despite one-time charges. As a ratio of 2006, an increase of EUR 81.1 million or 38.9%. Proforma operating revenue, the expenses developed as follows: growth for the same period was 4.5%, or 6.1% at a fixed Year Year EUR/USD exchange rate. Other income in the period 2007 2006 amounted to EUR 1.2 million, compared to EUR 1.7 million Selling and marketing expenses 15.5% 13.9% for the previous year. Research and development expenses 5.0% 5.6% Contribution margin of product sales was EUR 97.2 million, Administrative expenses 10.0% 10.6% or 33.6% of sales compared to 68.8 million or 33.0% of sales in 2006. Operating expenses other than the cost of Operating profit before depreciation, financial items and goods sold totaled EUR 88.4 million, which corresponds to taxes (EBITDA), and operating profit before financial items 30.5% of revenue compared to 30.2% for the previous year. and taxes (EBIT), were as follows: Any assessment of the operations, and comparison Year 2007 Year 2006 with previous results, should take into account that the EBITDA in thous. of EUR 20,980 15,679 year’s operating expenses include one-time costs of EBITDA as a % of sales 7.2% 7.5% EUR 4.9 million in the first half of the year relating to the Excluding one-time costs 8.9% - integration of AEW Delford and Scanvaegt. These costs EBIT in thous. of EUR 10,029 7,527 were chiefly charged to sales and marketing expenses, and EBIT as a % of sales 3.5% 3.6% to administrative expenses. Excluding one-time costs 5.2% - Sales and marketing expenses increased to 15.5% of sales The year was characterized by extensive integration efforts compared to 13.9% for the previous year, which reflects that are expected to generate significant operational extensive restructuring of the sales and service network. rationalization in 2008. The company’s goal of at least 10% Administrative expenses on the other hand, as well as EBIT is expected to be achieved at the end of that year. Marel Food Systems’ operation in millions of EUR Q4 ‘07 Q3 ‘07 Q2 ‘07 Q1 ‘07 Q4 ‘06 Sales 78.9 66.1 72.6 72.2 71.9 Operating profit (EBIT) 1.6 1.8 3.4 3.2 1.1 EBIT % 2.0% 2.7% 4.7% 4.5% 1.5% Net finance expenses ( 2.3 ) ( 1.9 ) ( 1.8 ) ( 1.2 ) ( 1.3 ) Net profit 3.4 ( 5.8 ) 7.4 1.0 ( 0.5 ) EBITDA 4.8 4.6 5.9 5.6 3.7 32


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    Assets and liabilities Financial items Total assets of the company at year-end 2007 were Net finance cost totaled EUR 7.1 million compared to EUR 427.3 million, an increase of about 62.5 million, or EUR 5.0 million in the previous year. The rise is a result of 17.1% from the previous year. The assets include a loan increased business and investment in new operations. amounting to EUR 49.6 million, granted to LME ehf of Average interest of the company’s long-term loans in 2007 which Marel Food Systems owned 20% until November was 6.3%. 2007 when the shares were sold. Payments will be received Marel Food Systems’ share in the operational profit of in the first quarter 2008. associated companies totaled EUR 4.6 million, which Investment in property, plant and equipment during 2007 may be attributed to investment by LME ehf in the Dutch totaled EUR 17.3 million, compared with EUR 10.4 million company Stork NV. The share is entered at market value. during the same period last year. Most was earmarked for The company applies natural exchange rate hedging to building new production facilities in Slovakia. the extent possible. Approximately 61% of the revenue was in euros or pegged to the euro through the Danish Owners equity krone. These two currencies account as well for 58% of A meeting of the Board of Directors of Marel Food Systems operating expenses. The Icelandic króna, however, plays hf on 29 November 2007 approved an increase to the a much larger part in expenses than revenues. To offset company’s share capital equivalent to 8% of its total issued that, the company has entered into forward exchange rate share capital. The private placement brought the total contracts in regard to all estimated costs in Icelandic króna number of shares at year-end 2007 to 400.4 million. In until April 2009. Sales and expenses, broken down by addition, the company holds 3.4 million treasury shares. currencies, are as follows: The equity ratio was 42.5% in 2007 compared to 39.6% at year-end 2006. The current ratio stayed the same between years, at 1.9. EUR (incl. DKK) 33


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    P E R F O R M A N C E 2 0 0 7 Dividends In 2007, the company paid EUR 824 thousand in dividends, which corresponds to EUR 0.22 per share, compared to EUR 601 thousand in 2006 which corresponds to EUR 0.25 per share. Cash Flow Operating activities provided net cash of EUR 2.8 million during the year, in comparison to the previous year when net cash of EUR 3 million went to operations. In 2007, operations generated working capital of EUR 13.0 million. At the end of the year, net cash totaled EUR 30.4 million, compared with 63.1 million at year-end 2006. The main reason for the change is investment in Stork NV shares, which totaled about EUR 41.6 million during 2007. Implementation of IFRS Marel Food Systems’ financial statements are prepared in accordance with the International Financial Reporting Standards (IFRS), and have been since 2005. 34


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    Business operations Marel Food Systems provides equipment to three main A new corporate identity was introduced: Marel Food segments of the food processing industry: fish, meat and Systems, and the logos and trademarks of the business poultry, and offers solutions for other food processing and units were reduced and redesigned to reflect the changes. prepared foods. The company’s brands cover numerous Marel Food Systems’ key markets are North America aspects of processing, from slaughtering and primary and Europe, and operations in 2007 continued to be processing of raw material to packing and labeling of reinforced in these areas. South American activities have finished products. The company’s comprehensive portfolio been reorganized to build on the strength of various of components is designed to provide customers with offices. Substantial growth was seen in 2007, where sales integrated solutions from a single, reliable source. of standard products have increased and the groundwork In 2007, there was a major effort to integrate Sales and for large projects has been laid. Special focus is on Eastern Service companies – now called Sales and Service Units and Central Europe where existing Sales and Service Units – that had been operated by Marel Food Systems and have been strengthened, and a new Sales and Service Unit Scanvaegt International. The structural integration of these will open in Romania in 2008. Marel Food Systems has companies has been concluded. The number of Sales and prioritized Eastern and Central Europe and South America Services offices was reduced from 45 to 24, and a number as target markets, and 2008 will also see increased focus of agent and distributor contracts were closed. All Sales and on Asia. Service Units are now managed by Marel Food Systems. Primary Secondary Estimated Processing Slaughtering processing/ processing/ market size segment Packaging Packaging in 2007, EUR m Product subgroup Slaughtering Basic Advanced Further processing COLD HOT Poultry Meat Fish Other ALL Estimated market size 3,500 in 2007, EUR m 35


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    P E R F O R M A N C E 2 0 0 7 In 2007, the company secured major contracts with many Integrated solutions will also play a major role in future of the world’s largest fish, meat and poultry processors. whereby waste-fish processing experience of Marel Food These large contracts for processing solutions are a result of Systems is used to restructure work onboard factory long-term sales and marketing efforts, which will support trawlers, or redesign existing shore-based plants, in order the company’s organic growth. to help customers maximize efficiency. Marel Food Systems has merged industry support for large Salmon processing projects across its Business Units from the beginning of Marel Food Systems continued to fortify its market 2008: sales of industrial projects will be measured as a position in the salmon industry in 2007. With strong core whole, i.e. not based on individual activities of Business competences, products and solutions, the company is very Units. This support system also applies to the fish, meat and well positioned, and is by far the largest supplier to the poultry industries. salmon processing industry. The new ITM intelligent trimming machine was very well Fish industry received in the market, and will have a major impact on The seafood processing industry is continuing to adjust to salmon processing operations. wild-fish quotas being reduced, and aquaculture replacing Increased processing of salmon has presented good wild fish on the plate. With the growth of aquaculture, new opportunities for further growth. Carnitech Salmon has plants are being built that call for more automation. This particularly benefited from this development with strong trend is very positive for Marel Food Systems and creates product sales. new opportunities. Marel Foods System intends to maintain and strengthen its Fish species such as tilapia, sea bass and sebream, along position within the salmon industry by working in closer with salmon, have replaced traditional species. Seafood cooperation with major suppliers. is the most expensive protein source in the world. To remain competitive, therefore, seafood processors require solutions that ensure good handling, superior automation Meat industry and yield control, and enhanced monitoring of yield and Marel Food Systems’ sales to the meat industry were good processing. This has created a myriad of new possibilities in 2007, although performance varied between brands. and opportunities for Marel Food Systems, as the industry is The sales network is adapting to the new products being expected to continue investing in new processing solutions offered from different business units. Large contracts that focus on these trends. were finalized and delivered to all continents, and signed contracts with delivery in 2008 will have a major influence In 2007, the global fish and fish farming industry continued on operations in 2008. the consolidation process, with some major mergers or Within the meat industry, Marel Food Systems is focusing acquisitions by private equity funds of old and established on the following segments: seafood companies. • Deboning and trimming of meat with complete Whitefish IT tracking and traceability systems. The company Marel Food Systems experienced a significant increase has a unique position in the market with respect to in sales to the fisheries industry in 2007. Several large technology offered. contracts were signed, and processing lines sold well in • Prepared meat processing system. Handling of the Iceland. The company’s high market share in a business secondary product coming out of meat processing segment with a limited supply of raw material puts pressure (ground beef, hamburgers, etc.), with focus on on Product Development to introduce new solutions. monitoring fat content in the process and turn-key Increased automation is essential for the whitefish industry. solutions. Marel Food Systems will meet these needs with robotic • Slicing and packing of meat, for example bacon. With solutions, new software and X-ray technology, along with increased automation using robotic technology and products based on existing technology and solutions. integration of machines to create a system solution, Marel Food Systems will strengthen its positions. 36


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    In addition, Marel Food Systems has a wide range of The poultry industry will play a major role for Marel Food products to meet the needs of the meat industry, including Systems, both in established and emerging markets. beef, pork and lamb. Marel Food Systems have put major effort into developing Sales of efficient management tools for yield control have solutions for the poultry industry. Areas of special focus are been the driving force behind Marel Food System success in the following applications: during the year. Other factors such as traceability, hygiene • Robotic solutions for grading, batching and positioning and lack of available labor also play an important part of products. Two product development teams are in determining industry needs. Turn-key solutions are working on robotic applications. Sales were robust in another trend in the industry, and here the company is 2007, and will continue to grow in 2008. seeing contract sizes larger than ever before. • Portioning solutions to optimize the conversion of raw Marel Food Systems expects growth in sales to the meat materials to valuable products. industry. Major restructuring of meat plants is occurring • X-ray solutions to inspect poultry meat for bones. in Eastern and Central Europe where the European Union • Grading and logistic solutions for new poultry plants, or has made restructuring funds available. In South America, the rebuilding of older ones. companies are embracing the new processing concepts • Conditioning of products to optimize processing. For provided by Marel Food Systems. example, this is accomplished by temperature control (chilling or crust freezing), flattening or grading. In 2007, the meat industry experienced significant increases in corn prices due to requirements in the Marel Food Systems’ product range has placed it in a very United States that allocated part of the harvest for fuel strong position in the poultry market. The company is production. Higher prices are hitting the meat industry meeting the needs in all major markets. harder than the other protein industries. This calls for To further support solutions, Marel Food Systems is further pressure to optimize meat production, and could offering software for yield and management control, as in the short-term affect sales of Marel Food Systems, but in well as various equipment for weighing and cutting. the long-term will create good opportunities. Other Poultry industry Software solutions Sales to the poultry sector remained good in 2007. The company focuses on dynamic software development. Increased sales and growth in this sector were evident A new platform has been established for software. The IT across Marel Food Systems. Bird flu is still a predominant strength of Marel and Scanvaegt has been merged into issue in the industry, but the effect on the company has a new platform, and products based on this platform are not been adverse. To the contrary, Marel Food Systems’ marketed under the name INNOVA. Innova software will proven traceability solutions have made it a preferred strengthen the position of the company and meet food- supplier to many of the major poultry producers in the industry needs. With Innova, the company will become world. The company’s ability to provide large-scale turn- the leader in IT products for food processing factories and key solutions has helped it maintain its leadership position provide a strong revenue base. in an industry where intense global competition focuses on the need to improve efficiency and yield while reducing Prepared foods and other food industries giveaway. Marel Food Systems will continue to develop opportunities in other food industries, as the technology and the The company maintained a strong market position solutions are available for these industries. The company on all of its markets, while increasing its coverage in has supplied products and solutions to the cheese, the emerging markets. Eastern and Central Europe are vegetable, fruit and ready-made meals sectors, and will becoming important markets for Marel Food Systems, as is continue to explore opportunities and adapt products South America. to emerging needs. Of special interest are applications Poultry is the fastest growing protein industry in the involving slicing, weighing, packing and mixing world, and has the most economical feed conversion ratio. ingredients into consumer packs. 37


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    P E R F O R M A N C E 2 0 0 7 Culture of innovation Marel Food Systems is a global leader in developing Knowledge and marketing high-tech processing equipment for the Marel Food Systems employs a highly qualified team of food processing industry that substantially increases scientists and technicians. Their primary task is to increase productivity. To consistently maintain this leadership knowledge of new technologies in order to strengthen position, the company operates strong research and the company‘s technological base. This research work development teams that focus on using new as well as is in addition to product development activities, which existing technologies to create innovative solutions to continue to play a decisive role in the company’s current and emerging production challenges. operations. This vigorous research and development strategy is Marel Food Systems maintains strong connections with supported by an annual investment in innovation of 5-7% the scientific community by participating in international of revenue, which is above the industry average. Highly research projects, welcoming research guests and qualified researchers and technicians, excellent working providing scientists with research facilities for special relationships with managers in the various food processing projects that are applicable to the company’s operational industries and a pioneering mindset have shaped Marel fields. The company also supports the teaching of science Food Systems’ successful R&D activities. and mathematics. ‘Return on Innovation’ Patents and trademarks In 2007, the focus of integration activities shifted to Patent protection is vital to Marel Food Systems as its innovation and product development. Return on value and strong position are, to a large degree, built on Innovation was chosen as the theme in the integration technological innovation and employee experience. The process to highlight the importance of innovation and its company’s investments are primarily in the knowledge role in creating value for the customer. and expertise of employees. For this reason the company is very involved in protecting the proprietary rights of its A new organizational structure was introduced to fuel product development activities. innovation within application segments such as grading, cutting and production control software, and to harvest and share knowledge across the five business units: AEW Delford, Carnitech, Marel, Scanvaegt and Marel Food Systems s.r.o. in Slovakia. The entire product range was evaluated and development efforts on overlapping products have been minimized. This has created many opportunities for more efficient new-product development without increasing R&D costs. More than 200 employees worked in product development during 2007. AEW Delford’s Robotic Batching System 38


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    Fulfilling expanding customer needs ScanPortioner B22 Marel Food Systems marketed more than 30 new products The Scanvaegt’s ScanPortioner B22 is an advanced dual- during 2007 under four brand names; Carnitech, AEW lane portion cutter designed for processing companies Delford, Scanvaegt and Marel. All products are designed that want to achieve high portioning capacity for fixed- to improve processing productivity throughout the entire weight and/or length-specific products. value chain in the fish, meat and poultry industries. Fixed Weight Cut’n Pack Solution Among these new products are the following: Marel’s Cut’n Pack Solution, based on two new products, delivers fixed-weight meat portions directly into trays Robotic Batching System ready for sealing and packing. The Marel OptiCut optimizes Both AEW Delford and Scanvaegt introduced products in the utilization of raw material, delivering stacked fixed the field of robotic batching. This new product from AEW weight portions ready for tray loading. The QuickLoader Delford gives our customers a high degree of automation, loads the portions into trays, ready for sealing and packing. greatly improving what is presently a manually intensive This solution increases profitability and hygiene through process. The product offers broad flexibility regarding better raw material utilization and less product handling. the product packaging format and range of pack sizes produced. Salmon Deheader Carnitech’s new Salmon Deheader is designed for automatic deheading and tail cutting of salmon. It minimizes product handling and contributes to less labor intensive production. Operation costs are reduced, and yield is increased due to better control of deheading, tail cutting and filleting processes. Marel’s Cut’n Pack Solution Carnitech’s Salmon Deheader Scanvaegt’s ScanPortioner B22 39


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    40


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    Consolidated financial statements for 2007 41


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    42


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    The Board of Directors' and CEO's Report The consolidated financial statements for the year 2007 comprise the financial statements of Marel Food Systems hf (the Company) and its subsidiaries. The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. A private placement of 33.5 million new shares and a stock option 3.2 million new shares in Marel Food Systems hf were sold for EUR 34.4 million. The total number of the Company´s shares after the offering is 403,785,697. Marel Food Systems hf., has entered into an agreement to acquire the Stork Food Systems division of Stork N.V. Through the acquisition Marel Food Systems will double its revenues and strengthen the platform for further internal growth and profitability. See also note 32. Total sales of the Group according to the income statement were EUR 289 million in the year compared to EUR 208 million in the year 2006. Net profit of the Group amounted to EUR 6.1 million compared to EUR 0.2 million in the preceding year. Assets of the Group amounted to EUR 427 million according to the balance sheet and shareholders' equity amounted to EUR 182 million at year-end. During the year an average of 2,129 employees were employed by the Group (at year end 2,245). Total wages and salaries for the group amounted to EUR 106.1 million. The number of shareholders in Marel Food Systems hf at year end 2007 was 2,038, a decrease of 937 during the year. Three shareholders had a holding interest of more than 10% in the company, Eyrir Invest, with 31.25%, Landsbanki Íslands hf, with 21.01% and Grundtvig Investment with 12.93%. The Board of Directors suggests no dividend to be paid in the year 2008, but refers to the financial statements regarding appropriation of the year's net profit and changes in shareholders' equity. The Board of Directors and CEO of Marel Food Systems hf hereby ratify the Consolidated Financial Statements of Marel Food Systems hf for the year 2007 with their signatures. Garðabær, 12 February 2008 Board of Directors Board of Directors Árni Oddur Þórðarson Arnar Þór Másson Friðrik Jóhannsson Helgi Magnússon Árni Oddur Þórðarson Lars Grundtvig Arnar Þór Másson Friðrik Jóhannsson Margrét Jónsdóttir Helgi Magnússon Lars Grundtvig Margrét Jónsdóttir Chief Executive Officer Hörður Arnarson Chief Executive Officer Hörður Arnarson 43


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    3 Independent auditor’s report To the Shareholders and Board of Directors of the Marel Food Systems hf We have audited the accompanying consolidated financial statements of Marel Food Systems hf and it´s subsidiaries (together; the Group) which comprise the consolidated balance sheet as of 31 December 2007 and the consolidated income statement, consolidated statement of changes in equity and consolidated cash flow statement for the year then ended and a summary of significant accounting policies and other explanatory notes. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (EU). This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the accompanying consolidated financial statements give a true and fair view of the financial position of the Group as of 31 December 2007, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU. Garðabær, 12 February 2008. PricewaterhouseCoopers hf Þórir Ólafsson Kristinn Freyr Kristinsson Þórir Ólafsson Kristinn Freyr Kristinsson 44


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    4 Financial Ratios 2007 2006 2005 2004 2003* Operating results Sales ................................................................................ 289,817 208,700 129,039 112,301 106,104 Gross profit ...................................................................... 97,236 68,803 43,625 41,016 34,617 Profit before depreciation (EBITDA) ................................ 20,980 15,679 14,814 16,527 10,129 Profit from operations (EBIT) ........................................... 10,029 7,527 9,721 12,066 6,568 Profit for the year ............................................................. 6,066 159 5,715 7,984 3,749 Cash flow statement Net cash from (to) operating activities ............................. 2,778 (2,992) 2,987 13,207 4,724 Investing activities ............................................................ (70,249) (69,754) (10,180) (6,389) (1,955) Financing activities .......................................................... 34,118 132,318 7,210 (7,263) (1,153) Financial position Total assets ..................................................................... 427,304 364,793 114,890 95,482 81,334 Working capital ................................................................ 109,887 87,989 16,557 19,807 17,700 Equity ............................................................................... 181,835 144,423 41,032 31,595 25,167 Various figures in proportion to sales Gross profit ...................................................................... 33.6% 33.0% 33.8% 36.5% 32.6% Selling and marketing expenses ...................................... 15.5% 13.9% 12.4% 12.4% 12.8% Research and development expenses ............................. 5.0% 5.6% 6.1% 5.8% 6.8% Administrative expenses .................................................. 10.0% 10.6% 8.7% 8.1% 8.1% Wages and benefits ......................................................... 41.2% 42.7% 42.5% 41.9% 41.0% Profit before depreciation (EBITDA) ................................ 7.2% 7.5% 11.5% 14.7% 9.5% Depreciation/amortization ................................................ 3.8% 3.9% 3.9% 4.0% 3.4% Profit from operations (EBIT) ........................................... 3.5% 3.6% 7.5% 10.7% 6.2% Profit for the period .......................................................... 2.1% 0.1% 4.4% 7.1% 3.5% Other key ratios Current ratio ..................................................................... 1.9 1.9 1.4 1.6 1.7 Quick ratio ....................................................................... 1.3 1.2 0.6 0.7 0.8 Equity ratio ....................................................................... 42.5% 39.6% 35.7% 33.1% 30.9% Return on owners' equity ................................................. 3.7% 0.2% 18.1% 30.5% 16.5% Return on total assets ...................................................... 1.5% 0.1% 5.4% 9.0% 4.6% Price to earnings (P/E) last 12 months ............................ 73.5 - 36.7 17.7 19.7 *Amounts 2003 are not in conformity with IFRS. Marel Food Systems hf, Consolidated financial statements 31 December 2007 Amounts in thousands of EUR 45


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    5 Consolidated Income Statement 2007 2006 2007 2006 Notes Q4 Q4 YTD YTD Sales ........................................................................ 5 78,869 71,946 289,817 208,700 Cost of sales ........................................................... (53,692) (48,296) (192,581) (139,897) Gross profit 25,177 23,650 97,236 68,803 Other operating income ........................................... (66) 642 1,203 1,722 Selling and marketing expenses .............................. (12,172) (10,990) (44,829) (29,085) Research and development expenses .................... (4,237) (4,291) (14,631) (11,744) Administrative expenses .......................................... (7,100) (7,933) (28,950) (22,169) Profit from operations 1,602 1,078 10,029 7,527 Finance costs - net .................................................. 7 (2,277) (1,264) (7,091) (5,026) Share of results of associates ................................. 27 5,125 (236) 4,602 (1,449) Profit before income tax 4,450 (422) 7,540 1,052 Income tax expense ................................................. 9 (1,077) (93) (1,474) (893) Net profit 3,373 (515) 6,066 159 Attributable to: Equity holders of the Company ................................ 3,367 (520) 6,065 146 Minority interest ....................................................... 6 5 1 13 3,373 (515) 6,066 159 Earnings per share for profit attributable to equity holders of the company during the year (expressed in EUR cent per share): - basic .................................................................... 10 0.91 -0.14 1.65 0.05 - diluted .................................................................. 10 0.90 -0.14 1.64 0.05 The notes on pages 50-75 are an integral part of the consolidated financial statements. Marel Food Systems hf, Consolidated financial statements 31 December 2007 Amounts in thousands of EUR 46


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    6 Consolidated Balance Sheet Notes 31/12 2007 31/12 2006 ASSETS Non-current assets Property, plant and equipment ....................................................................... 12 66,305 56,125 Goodwill ......................................................................................................... 13 95,450 97,117 Other intangible assets .................................................................................. 13 24,585 16,510 Investments in associates .............................................................................. 27 3,281 939 Available-for-sale investments ....................................................................... 28 631 744 Receivables .................................................................................................... 16 245 314 Loan to Associate ........................................................................................... 30 0 6,707 Derivative financial instruments ..................................................................... 18 127 37 Deferred income tax assets ........................................................................... 21 3,542 1,991 194,166 180,484 Current assets Inventories ...................................................................................................... 14 61,587 53,263 Production contracts ..................................................................................... 15 15,168 13,118 Trade receivables ........................................................................................... 16 52,871 47,306 Other receivables and prepayments .............................................................. 16 20,427 6,697 Loan to Associate ........................................................................................... 30 49,607 0 Derivative financial instruments ..................................................................... 18 3,041 846 Cash and cash equivalents ............................................................................ 17 30,437 63,079 233,138 184,309 Total assets 427,304 364,793 EQUITY Capital and reserves attributable to equity holders of the Company Ordinary shares .............................................................................................. 25 4,452 4,048 Treasury shares ............................................................................................. 25 (38) (3) Share premium ............................................................................................... 147,584 115,369 Fair value and other reserves ........................................................................ 26 (502) (88) Retained earnings .......................................................................................... 30,293 25,052 181,789 144,378 Minority interest 46 45 Total equity 181,835 144,423 LIABILITIES Non-current liabilities Borrowings ..................................................................................................... 19 115,327 119,744 Deferred income tax liabilities ........................................................................ 21 6,380 4,306 Provision ........................................................................................................ 22 11 0 Derivative financial instruments ..................................................................... 18 500 0 122,218 124,050 Current liabilities Trade and other payables .............................................................................. 20 75,487 54,861 Derivative financial instruments ..................................................................... 18 117 445 Current income tax liabilities .......................................................................... 736 709 Borrowings ..................................................................................................... 19 45,029 38,803 Provisions ....................................................................................................... 22 1,882 1,502 123,251 96,320 Total liabilities 245,469 220,370 Total equity and liabilities 427,304 364,793 The notes on pages 50-75 are an integral part of the consolidated financial statements. Marel Food Systems hf, Consolidated financial statements 31 December 2007 Amounts in thousands of EUR 47


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    7 Consolidated Statement of Changes in Shareholders' Equity Attributable to equity holders of the Company Share Share Other Retained Minority Total Notes capital premium reserves earnings Total interest equity Balance at 1 January 2006 2,629 12,671 225 25,507 41,032 0 41,032 Cash flow hedges: – net fair value gain/(loss), net of tax ........ 26 676 676 676 Currency translation differences ............... 26 (989) (989) (989) Net income/(expenses) recognised directly in equity ........................................ 0 0 (313) 0 (313) 0 (313) Sale of treasury shares ............................. 29 1,651 1,680 1,680 Purchases of treasury shares ................... (24) (1,734) (1,758) (1,758) Employee share option scheme: - value of services provided ...................... 349 349 349 Business combination ............................... 31 0 0 32 32 Dividend related to 2005 ........................... (601) (601) (601) Profit for the period .................................. 146 146 13 159 Issue of share capital ................................ 1,411 102,432 103,843 103,843 1,416 102,698 (313) (455) 103,346 45 103,391 Balance at 31 December 2006 4,045 115,369 (88) 25,052 144,378 45 144,423 Cash flow/net investment hedges: – net fair value gain/(loss), net of tax ........ 26 645 645 645 Currency translation differences ............... 26 (1,059) (1,059) (1,059) Net income/(expenses) recognised directly in equity ........................................ 0 0 (414) 0 (414) 0 (414) Purchases/sale of treasury shares ............ (35) (2,303) (2,338) (2,338) Employee share option scheme: - value of services provided ...................... 557 557 557 Dividend related to 2006 ........................... (824) (824) (824) Profit for the period .................................. 6,065 6,065 1 6,066 Issue of share capital ................................ 404 33,961 34,365 34,365 369 32,215 (414) 5,241 37,411 1 37,412 Balance at 31 December 2007 4,414 147,584 (502) 30,293 181,789 46 181,835 The notes on pages 50-75 are an integral part of the consolidated financial statements. Marel Food Systems hf, Consolidated financial statements 31 December 2007 Amounts in thousands of EUR 48


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    8 Consolidated Cash Flow Statement 2007 2006 YTD YTD Notes YTD YTD Cash flows from operating activities Net profit ............................................................................................................ 6,066 159 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and impairment of fixed assets ...................................................... 5,069 3,834 Amortisation and impairment of intangible assets .............................................. 5,882 4,318 Currency fluctuations and indexation .................................................................. 260 (5,428) Changes in deferred taxes .................................................................................. 246 (788) Share of results of associates ............................................................................. (4,602) 1,460 Other changes .................................................................................................... 66 (817) Working capital provided by operating activities 12,987 2,738 Changes in operating assets and liabilities: Inventories and production contracts (increase) ................................................ (12,115) (8,214) Trade and other receivables (increase) ............................................................. (20,399) (2,137) Short-term liabilities, increase ............................................................................ 22,305 4,621 Changes in operating assets and liabilities (10,209) (5,730) Net cash from (to) operating activities 2,778 (2,992) Cash flows from investing activities Acquisition of subsidiary, net of cash acquired ................................................... 28 0 (45,732) Purchase of property, plant and equipment (PPE) ............................................. 12 (17,328) (10,402) Purchase of intangibles ...................................................................................... 13 (13,266) (7,817) Purchase of associate investments .................................................................... 27 0 (1) Loans made ........................................................................................................ (41,643) (8,223) Proceeds from sale of PPE ................................................................................. 1,242 2,303 Proceeds from sale of shares ............................................................................. 746 118 Net cash used in investing activities (70,249) (69,754) Cash flows from financing activities Proceeds from issue of ordinary shares ............................................................. 34,638 59,018 Proceeds from (purchase of) treasury shares, net .............................................. (2,154) 271 Proceeds from borrowings .................................................................................. 24,669 75,358 Repayments of borrowings ................................................................................. (13,434) (10,095) Finance lease principal payments ...................................................................... (865) (569) Changes in short-term bank loans ...................................................................... (7,912) 8,936 Dividend paid to group shareholders .................................................................. (824) (601) Net cash from financing activities 34,118 132,318 Net increase (decrease) in cash and cash equivalents (33,353) 59,572 Exchange losses on cash and bank overdrafts .................................................. 711 (373) Cash and cash equivalents at beginning of year ................................................ 63,079 3,880 Cash and cash equivalents at end of year 30,437 63,079 Other information Interest paid ........................................................................................................ (3,573) (2,431) Income tax paid ................................................................................................... (1,864) (1,143) Dividend received ............................................................................................... 8 3 The notes on pages 50-75 are an integral part of the consolidated financial statements. Marel Food Systems hf, Consolidated financial statements 31 December 2007 Amounts in thousands of EUR 49

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