A N N U A L R E P O R T

Transcription

1 ANNUAL REPORT 2000

2 2000 Business year (DM) (DM) (DM) (euro*) Employees (average) number 1,171 1,140 1,155 1,155 Turnover (million) ,6 EBITDA corrected for LiFo effect (million) Depreciation and amortisation of tangible and intangible assets (million) EBIT corrected for LiFo effect (million) Result from ordinary activities (million) Group result for the year (million) DVFA/SG result (million) Cash flow (million) Capital expenditure (million) Dividend per share Dividend per share including tax credit * 1 euro = DM

3 A journey of the senses through a busy year. Letter to our shareholders Looking good: the new FRoSTA design In good taste: the new Peter from FRoSTA Smells yummy: FRoSTA product innovations Glad to hear it: FRoSTA s new markets Hands-on project: FRoSTA goes high-tech Management report Financial statements years summary Report of the Supervisory Board Management bodies Group structure and addresses Locations cover

4 2 from left to right: Dr. Thomas Braumann, Achim Schön, Dr. Stephan Hinrichs, Dirk Ahlers

5 L E T T E R T O O U R S H A R E H O L D E R S Bremerhaven, 3 April 2001 In terms of financial results, 2000 was not a very gratifying year. Our sales and our earnings were considerably lower than in the previous year. These results failed to meet our expectations. Sales declined in the spring and summer, and in autumn we were facing rising raw material costs and pressure on our sales prices. Nevertheless, 2000 was also a successful year. We completely reworked our brand profile, continued market development in neighbouring central and eastern European countries, especially Poland, and completed some major new investments. The resulting extra costs put a strain on our financial results. To face the challenges of the coming years, we will continue our FRoSTA brand strategy: Our company mission statement, The best flavour guaranteed through the careful and responsible selection of the best and freshest ingredients fits like it s tailor-made in today s market. It s further highlighted by our new slogan, FRoSTA. Tastes best. We will pursue our company goals exclusively in countries where we can be market leader or at least the second strongest brand. That is in Germany, Poland, Austria, Italy, Czech Republic, Slovak Republic, Hungary and Romania. All FRoSTA products will be presented with a unified wave design. The vertical wave element will connect all our products. Equally ambitious is our treatment of our clients for whom we produce private labels. We will also continue to concentrate on our food service business, as well as the new field of organic or bio products. 3 With this strategy we will achieve our three main goals: 1. A lasting improvement in the return on investment. 2. An increase of the FRoSTA brand s market share in our focus countries. 3. A growth rate even higher than the fast-growing frozen foods market. It is with these goals that I will hand over the Executive Board Chair to Dr. Thomas Braumann at our annual shareholders meeting on 21 June 40 years after the founding of FRoSTA GmbH. I am certain that Dr. Braumann, together with his Executive Board colleagues Achim Schön and Dr. Stephan Hinrichs, will keep the company on a successful course, and will reach our common goal of developing FRoSTA into a leading and successful European producer of frozen foods. I personally will continue my engagement at FRoSTA through my duties on the Supervisory Board and as the company s largest shareholder, thereby ensuring that FRoSTA will continue to be successful in future, especially in terms of the interests of our shareholders. Dirk Ahlers Join us now on a sensational trip through a year in which our company made sensible investments for the future.

6 4 Here's a chance to see how different things can appear when you look at them from a different perspective just as many objects can only be seen clearly from a distance. S I G H T

7 Have you already seen it? The FRoSTA brand has a new look. With tasteful packaging, a new slogan, and a striking new visual device: the wave. Together, an eye-catching combination. It just goes to show you: it pays to take a closer look. Otherwise you might not have noticed that FRoSTA has given its packaging and its logo a makeover. The positive reaction from our retailers and our customers has already made it clear that our designers did an excellent job. The reason for the improvement is quite simple. Quality and good taste are what the FRoSTA brand is all about. Now that s communicated to the market in a catchy, up-to-date way. FRoSTA is presenting itself in good taste. Starting with the FRoSTA wave as a strong, optic brand signal. On all our packaging, the wave and the very appetizing product images make certain that the customer won t miss the new FRoSTA. Our new slogan is catchy and concise: FRoSTA. Tastes best. And the new logo looks more modern, more dynamic and friendlier. 5 S I G H T

8 Offering customers delicious meals is a question of having good taste. And we have just the man for the job: Chef Peter. And the years of work as FRoSTA cook have produced a miracle: Peter has gotten younger! 6 He first came to life seven years ago as a light-hearted advertising idea. Now Chef Peter has become our living symbol of taste and competence. He s the man with friends around the world who enrich his recipes with special local ingredients. Peter stands for FRoSTA s modern, authentic, international recipes. In 2000, the new young Peter began advertising for FRoSTA fish products. On television, he was seen impressing his friend Luigi with fish dishes that taste like in Italia. He was also busy on Polish TV, enticing children with our fish fingers. And he made an important debut in a medium that through its rapid development and growth has become a necessity: the Internet. Starting in May 2001, Peter will be guiding Internet users on a personal tour of the FRoSTA world. He will have a powerful new tool to help him in cyberspace. FRoSTA s own FoodFinder will allow customers to find the product of their choice in the shop nearest them. And if the FRoSTA product the customer wants isn t for sale nearby, it can be delivered right to his door. For the customer, a great service, and for FRoSTA, an important step for the future. Visit Peter at TASTE

9 7 Flavour is the key. But successfully preparing a recipe also takes a practised hand. Otherwise you may end up with a soup that is just too salty or one that lacks the biting flavour of pepper. So in case you run short of the two most vital seasonings, we have included a back-up supply. TASTE

10 8 Every successful cook knows: the secret of any delicious dish is in the spices. It s what gives a dish that certain something. Here s a chance to test your own sense of smell: Just scratch and sniff the product photo. What is your nose telling you? S M E L L

11 The nose knows. Whether it s smelling a delicious aroma from the kitchen, or knowing how to bring successful new products out on the market. Like we do at FRoSTA. FRoSTA s many years as the leader in the ready meals market show we have a nose for profitable products. Our concept of offering original international recipes has been a success with both retailers and customers. But that s no reason for the company to rest on its laurels. At FRoSTA, we are continually developing new products. For example, more varieties of last year s newly introduced Filet di mar fish dishes. Joining the popular Tomato-Basil and Mustard-Onion are the new Spinach-Cheese and Peppers and Herbs. There s also another whole new family of ready meals: pasta. Our versions of beloved Italian noodle dishes are prepared with exquisite sauces and always served al dente. Another example of FRoSTA s sense for innovation. 9 S M E L L

12 To listen in on some of the workings of FRoSTA in action, call this number. You may get to hear Chef Peter doing his best in Polish. Try it! H E A R I N G

13 To hear what s really going on, you ve got to keep your ears open. And that s particularly important when it comes to opening up new markets. For example, in Poland... Some people couldn t believe their ears when they heard that FRoSTA was investing in Eastern Europe, a supposedly economically unattractive market. But there are many good reasons for this investment. One, the relatively low current level of frozen food consumption. Which makes for enormous growth potential. And this means the prospect for FRoSTA, already the most wellknown brand in some Eastern European countries, to become the market leader in the entire region. Where do we go from here? In 2000, it was important that we bring the quality level of production at Bydgoszcz up to the same standards as at Bremerhaven. Starting in February 2001, our Bydgoszcz plant adds ready meal production to its fish operation, supplying the entire Eastern European market. 11 So how does something like this get started? Actually it s quite simple. First, we took over a frozen food factory and its competent workers in Bydogoszcz, Poland, and converted it to FRoSTA production. Then, we kicked off a TV advertising campaign for fish fingers and ready meals featuring Chef Peter. After just one year, our brand recognition in Poland was four times as high as before. H E A R I N G

14 Staying in touch with market conditions. Having a grasp of the best production strategies was a big year for hands-on projects at FRoSTA. Projects that will carry the company well into the future. 12 A 100,000 cubic metre structure, it gets down to minus 28 degrees Celsius, and has a price tag of DM 20 million. The new FRoSTA coldstore has to be this big 12,500 pallets loaded with raw materials need that much storage space. But that s only half of the picture. Our new production facility, another DM 20 million investment, is the perfect complement to the new coldstore. Now the supplies for Peter s new kitchen are brought in automatically over a connecting bridge without leaving the ice-cold environment of the plant. It s part of a further refinement of our technologies, that includes all our production and packaging processes. What we have gained with the implementation of this fully harmonized dual system is an advantage that s easy to grasp lower logistics costs. The new plant will ensure a continuation of our ongoing commitment to quality, innovation and reliable delivery. In fact, it has already been responsible for a 40% increase in productivity. Not a bad debut, wouldn t you agree? The new coldstore with its fully automatic supply bridge. T O U C H

15 13 Here s an opportunity to create something with your own hands that can perform the same principle as the new FRoSTA coldstore. Simply cut out this page and fold as indicated. And remember always keep a cool head. T O U C H

16 MANAGEMENT REPORT 15 I. Basic environment 1.1 General economic situation Situation in the industry II. Situation of the company 2.1 Development of sales and turnover Our marketing strategy Organization, administration and legal corporate structure Capital expenditure Procurement Production Employees Environmental protection Net assets, financial position and results of operations The FRoSTA share III. Events after the end of the financial year IV. Outlook V. R&D report VI. Risk report

17 M A N A G E M E N T R E P O R T I. Basic environment 1.1 General economic situation The economic development of those countries in which we are endeavouring to achieve a leading market position for our FRoSTA branded products is of particular importance to us. These countries, which we refer to as our focus countries, are Germany, Austria, Italy, Poland, the Czech Republic, the Slovak Republic, Hungary and Romania. The economic upswing in Germany strengthened in Real gross domestic product (GDP) grew by 3%. Private consumer spending increased by 1.9%, and spending on food and related products by 2.1% in nominal terms. The two Western European countries of Italy and Austria also reported similar stable growth. 16 The strong growth of real GDP observed in previous years increased once again in Poland (+5%) and Hungary (+5.2%). Following years of decline, Romania (+1.3%) and the Czech Republic (+2.5%) reported growth again in the past year. Thereby, the sharp increase in domestic demand was an important growth generator in all countries. We regard these figures as confirmation of our strategy of investing, especially with our FRoSTA brand, in the Eastern and Central European markets. We believe that our long-term growth prospects in these countries are very positive. The development of the dollar exchange rate in 2000 was not in line with our assumptions. Our planning was based on an average dollar rate of DM 1.90, whereas the actual average rate was about DM As a result, we spent considerably more on our raw materials, especially fish, than planned. We were only partly successful in passing on the price increases to our customers. 1.2 Situation in the industry Consumption of frozen food increased satisfactorily in all our focus countries. According to the market data for Germany from G+I, the overall market for frozen food in Germany grew in quantity terms, at 5.7%, faster than the previous year s figure of 3.8%. Sales of frozen

18 M A N A G E M E N T R E P O R T Changes in 2000 compared with 1999 Population GDP Spending on food and Consumption related products of frozen food Germany 83 million 3.0 % 2.1 % 6 % Austria 8 million 3.6 % 2.5 % 2 % Italy 58 million 2.8 % 2.6 % 1 %* Poland 39 million 5.0 % 2.0 %* 20 %* Hungary 10 million 5.2 % 1-2 %* 11 %* Romania 23 million 1.3% 10 %* 30 %* Czech Republic 10 million 2.5 % 0 %* 3 %* Slovak Republic 5 million 2.4 % 0 %* 3 %* ready meals increased by 12.3%. Following a decline in the previous year, frozen fish once again recorded growth of 5.7%, while 4.1% more frozen vegetables were consumed. * own estimates In this year s survey of the most promising product groups, our retail trade partners see frozen food at the head of the pack for the umpteenth time in their evaluation of the future development prospects. This also applies without reservation both for the retail trade and the catering area (catering, canteens and institutions). 17 The retail trade in Europe, however, continues to be characterized by stagnation and tough predatory competition. This is leading to further concentration across the national borders. It is expected that this trend will continue for the next few years. Following the Nestlé Group s withdrawal of the Maggi brand from the German frozen food market in 1999, Unilever introduced a new ready meals product group under the Iglo brand name in the autumn of This involves the substitution of existing products and the introduction of some additional ones. We assume that these introductions, with the accompanying advertising measures, will benefit the entire market for frozen ready meals, and therefore see no threat to our position as the market leader. Consumption of frozen food in Poland is also growing. We have succeeded there in switching our fish products, which were produced temporarily under the Iglo brand name, to our own brand name without any distribution losses, and have therefore turned FRoSTA into the most important brand for fish and ready meals in that country. FRoSTA products are gaining in importance in the even smaller, but also growing Czech Republic, Slovak Republic, Hungarian and Romanian markets.

19 M A N A G E M E N T R E P O R T II. Situation of the company 18 Turnover by sale segments in DM million Home service/catering/industry Customer brands FRoSTA/ELBTAL/TIKO Turnover by product groups in DM million Development of sales and turnover We succeeded in 2000 in increasing our sales volume by 3.5% compared with the previous year. This increase is due to a sharp jump of 11.3% in sales volumes in the second half of the year compared with the previous year, whereas sales volume had declined by 4.2% in the first half of the year. This positive trend was not fully reflected in the turnover, as a result of an amended price and product line structure, due especially to the reduction in the fish area. Total turnover accordingly fell slightly to DM 537 million, a decrease of 4.4% compared with the previous year s figure of DM 562 million. Brand turnover (FRoSTA, ELBTAL and TIKO) fell from DM 250 million in the previous year by a further 8.8% to DM 228 million. We have once again suffered a loss of turnover, especially in the FRoSTA fish area, because we have withdrawn further from loss-making product segments where we are not the sole representatives (e.g. fish fingers and gourmet fillets). Sales of FRoSTA ready meals in Germany increased slightly compared with the previous year. We have maintained our market share, in relation to complete dishes, at a high level, despite the new competing products from Iglo. We therefore continue to be the market leaders, by a considerable margin, in Germany, Poland and Romania in this important segment We recorded a slight increase of 0.5% in our turnover of customer brands for the German retail food trade. Our business with customer brands declined overall by 5.7% to DM 216 million because of the loss of turnover abroad. Our turnover in the home service, catering and industry customer segment increased by 12%, and amounted here to DM 93 million, after DM 83 million in the previous year Ready meals and miscellaneous Vegetables Fish The sales structure by product groups developed as follows. Turnover of fish products amounted to DM 236 million, or 44% of the total turnover ( %). Sales of vegetables amounted to DM 151 million, or 28% of the total turnover ( %). The sale of ready meals and miscellaneous products accounted with DM 150 million for 28% of the total turnover ( %).

20 M A N A G E M E N T R E P O R T Sales abroad amounted in 2000 to DM 96 million, or 7.7% less than the previous year s figure of DM 104 million. This decline is due to the negative development of the customer brands, while our own brand business grew, in particular thanks to the positive development in Poland. Turnover by regions in DM million 2.2 Our marketing strategy The FRoSTA brand guarantees the best taste, thanks to careful and responsible selection of the best and freshest ingredients. The FRoSTA chefs prepare our products in accordance with original recipes. FRoSTA products should always taste as if they have just been freshly prepared at home FRoSTA brand products are the most important basis for our goal of growing, as the leading brand, faster than the market. Our aim in our 200 focus countries is either to defend our market leadership, to become the market leader or at least to occupy the position of the no. 2 brand. 100 We offer the same products in all our focus countries with the same recipes, the same presentation and, wherever possible, under the same names FRoSTA products are presented with the uniform wave design. The vertical wave is the element that connects all the products. Abroad Germany 19 We are supporting the FRoSTA brand continuously with advertising, in order to develop and maintain the familiarity of the brand. Our advertising activities are concentrating on ready meals in the broadest sense in our focus countries, i. e. on dishes in the Dinner International group, pasta products, the Filet di mar fish product group, stir-fry vegetables and fish fingers (at the present time only in Poland). Our advertising spending has developed as follows: DM ,658 31,725 30,929 32,445 38, Organization, legal environment Responsibilities in the Executive Board are broken down between the sales, the production and technology and the finance and administration areas, and the Board is responsible for all areas throughout Europe. The Director of Marketing Europe, who reports directly to the Chairman of the Executive Board, is responsible for all marketing activities in all of our focus countries. The former Executive Board area Marketing and Sales Own Brands was dissolved on 1 July As a consequence, the Vice President Sales

21 M A N A G E M E N T R E P O R T is now once more responsible for both the own brands and the customer brands business. Capital expenditure in DM million We have established a company called BioFreeze for the production and marketing of biologically cultivated vegetables. All activities, from advice on cultivation through production to the marketing to industry customers, catering customers and the retail food trade, are concentrated in this independent business Capital expenditure The volume of capital expenditure in the group once again increased 50 sharply from DM 38.2 million in the previous year to DM 59.8 million in The following major projects were successfully completed in 2000 or came into operation at the beginning of 2001: new high-storage coldstore in Bremerhaven (December 2000), new ready meals production line in Bremerhaven (December 2000), new sewage treatment plant in Lommatzsch (December 2000), 10 new cream vegetables mixing plant in Lommatzsch (September 2000), new ready meals production line in Bydgoszcz (February 2001) Procurement The year 2000 was dominated by sharp cost increases in the procurement area. Substantial price increases were recorded for fish raw materials and various kinds of meat, which are purchased in dollars, and for packaging materials. Energy costs also went up significantly in The cost increases in the materials area could only be partly compensated for by optimizing our purchasing procedures. 2.6 Production The productivity of our four factories has improved continuously, as demonstrated by the reductions in production costs. Despite a 28% increase in output in the second half of the year, the number of employees could be kept constant. The performance of the Schottke factory, which commissioned not only a new high-storage coldstore for raw materials but also a new ready meals production line, while keeping the production running, is worthy of special mention. In addition, completely new production technology was developed for the production of our new Filet di mar fish concept and implemented for the market. The ELBTAL factory succeeded in reducing the number of staff by 7.5%, while maintaining roughly the same production quantity.

22 M A N A G E M E N T R E P O R T At the Rheintal factory, the production volume of the most important product, spinach, could be increased both in comparison with the previous year and compared with the budget. The capital expenditure of the last two years has led to considerable improvements in productivity here. The factory in Bydgoszcz, Poland, was acquired completely in 2000, including the buildings and the land, and is at present being converted for the extension of production to include ready meals and the achievement of an EU number. Also worthy of mention is the award of an ISO 9001 certificate in December Employees Total staff costs increased from DM 78.5 million to DM 81.7 million. The expenditure included in this amount on personnel development and training increased. The number of wage earners fell slightly, while the number of salaried staff went up. Number of employees FRoSTA Head Office thereof administration: thereof sales (incl. foreign): Production sites thereof Schottke, Bremerhaven thereof Rheintal, Bobenheim-Roxheim thereof ELBTAL, Lommatzsch thereof Bydgoszcz, Poland Total group 1,140 1, The number of trainees and apprentices amounted to 35 compared with 37 in the previous year. This figure is considerably higher than the mean number over the last 10 years. As in previous years, we once again offered our staff the opportunity in 2000 to become co-owners of FRoSTA AG by purchasing employees shares at a preferential price. The number of shares purchased fell slightly to 28,397, compared with 29,786 in the previous year. Altogether 225 purchasers ( ) participated in the scheme. We are delighted at the trust of our staff, and it is our wish that even more employees will become FRoSTA shareholders in the future. Our entire staff participated with great commitment and untiring dedication during the past year in the achievement of our common goals. We should like to express our sincere thanks for this!

23 M A N A G E M E N T R E P O R T 2.8 Environmental protection A new sewage treatment and recycling plant was constructed at the ELBTAL factory. This model project, which is subsidized by the state of Saxony, will not only reduce the sewage burden by 80%, but will also at the same time more than halve the amount of drinking water used. In addition, the residues are fermented to biogas, which is used for the supply of energy. This project is being monitored scientifically by the University of Bremen. Packaging waste at all factories was reduced by 10 %. 2.9 Net assets, financial position and results of operations Earnings before interest and taxes (EBIT) corrected for the LIFO effect resulting from the valuation of the stocks for German tax purposes declined in 2000 from DM 20.8 million to DM 6.1 million. This decline was mainly due to the tangible and intangible investments in increasing FRoSTA AG s competitiveness and the unfavourable development of the exchange rates. 22 Depreciation on plant that was only commissioned at the end of 2000 burdened our earnings with DM 4.3 million. The improvements in earnings resulting from the implementation of these investments were not yet recorded in We nevertheless made every effort to commission this plant already in the past year, so as to be able to make use of the more favourable depreciation rates which were available until 31 December Compared to the previous year we spent DM 6 million more on advertising measures for the introduction of Filet di mar in Germany and for the development of the brand in Poland. Start-up losses in the Eastern European markets had a negative effect on the earnings. Here too, the effects of the capital expenditure will only be felt over the next few years. The sudden increase in the dollar exchange rate over a short period of time, especially in the private brands area in the second half of the year, led to a decline in the margins, because we were unable to pass on the resultant price increases immediately. Other operating charges include our contribution to German industry's slave labour initiative.

24 M A N A G E M E N T R E P O R T - D R A F T As a consequence of the above-mentioned factors, earnings before interest, taxes, depreciation and amortization (EBITDA) adjusted for the LiFo effect fell from DM 42.8 million to DM 31.4 million. in DM million TURNOVER EBITDA (excluding LiFo effect) Depreciation and amortization EBIT (excluding LiFo effect) Financial result LiFo effect Result from ordinary activities GROUP RESULT FOR THE YEAR The group result for the year after tax amounts to DM 0.1 million, compared with DM 13.4 million in the previous year. The DVFA/SG (German Association for Financial Analysis and Investment Consultancy) result for the group fell from DM 12.9 million to DM 0.1 million. We are reporting a profit for the year of DM 3.2 million (1999 DM 13.3 million) for FRoSTA AG. The difference compared with the result for the group is mainly due to the start-up losses of the subsidiaries in Eastern Europe. The tax burden fell sharply in 2000 from DM 7.4 million to DM 0.8 million as a consequence of the decline in earnings and tax refunds relating to other periods. Cash flow in DM million We will propose to the Annual General Meeting that, despite the reduced earnings, a dividend be paid at the previous year s level of DM 1.50 per share. The majority shareholder has notified us that he will waive a dividend on 4 million of the shares held by him. We will need the entire unappropriated profits plus DM 160,000 from the reserves in order to pay the dividend on the remaining 2.2 million shares. The Executive Board is convinced that the amount saved will contribute to the strengthening of the FRoSTA brand. The continuity of the dividend for the remaining shareholders is an expression of the confidence that the investments into brand, plants and equipment made in 2000 will considerably strengthen the group s long-term profitability The cash flow declined from DM 36.3 million in 1999 to DM 26.6 million in 2000, a reduction of 26.7 % compared with Cash flow Capital expenditure

25 M A N A G E M E N T R E P O R T The exceptionally high capital expenditure was more than twice as high as the depreciation and could not be completely financed out of cash flow. Fortunately, we succeeded in financing the remaining amount by reducing the current assets from DM 164 million to DM 139 million, and in addition in reducing the short-term bank liabilities from DM 42.4 million to DM 34.5 million and the long-term bank liabilities from DM 23.7 million to DM 17.8 million. Balance sheet structure in DM million Fixed assets Current assets Group assets Group liabilities Capital and reserves Long term non-equity funds Medium term non-equity funds Short term non-equity funds The reduction in the current assets enabled us to restrict the increase in the balance sheet total to a minimum, despite a considerable increase in the fixed assets. The equity ratio fell from 29.1% in 1999 to 25.4% The FRoSTA share The 2000 stock exchange year was marked by significant turbulence in all markets. With a high for the year of ( ) and a low of ( ), the FRoSTA share recorded a slightly declining trend. With the proposed dividend for the year 2000, the dividend yield on our shares based on the year-end price amounts to 6.4 % ( %). Taking into account the tax credit, the dividend yield is 9.1 % ( %)

26 M A N A G E M E N T R E P O R T Ratios on the FRoSTA share (in DM) (in DM) (in euro)* Number of shares 6,199,503 6,227,900 6,227,900 Capital and reserves per consolidated balance sheet ( 000) 82,148 72,984 37,390 Capital and reserves per share Stock market price at end of year High for the year Low for the year Turnover (number of shares) 296, , ,030 P/E ratio (year-end price/dvfa profit) Price/cash flow ratio (year-end price/cash flow) Market capitalization (year-end price x number) ( 000) 172, ,169 74,735 Dividend per share before tax credit Dividend yield 5.4 % 6.4 % 6.4 % Dividend per share after tax credit Dividend yield 7.7 % 9.1 % 9.1 % Group result for the year ( 000) 13, Result for the year per share Cash flow for the group ( 000) 36,258 26,580 13,590 Cash flow per share * 1 euro = DM 25 III. Events after the end of the financial year The year 2001 began with strong turnover growth, which in the first few weeks was considerably above the previous year s level. All product areas, especially vegetables and fish, benefited from this growth. FRoSTA stir-fry and mixed vegetables in the new brand design packaging, with which we achieved not only higher sales but also additional listings with the customers, developed pleasingly. The FRoSTA fish area, where we were supporting our Filet di mar products in the spring with a new TV campaign, also developed positively. The problems with beef due to BSE have prompted us to switch most of our ready meals to other kinds of meat. This group has developed, together with the stir-fry vegetables, so strongly that we urgently need the capacity of the new production lines in Bremerhaven and Bydgoszcz, available by the end of 2000, in order to satisfy the demand. Sales of FRoSTA products in Poland, Hungary, the Czech Republic and Romania also developed positively, especially in Poland, where the spring TV campaign for fish fingers will result in a further increase in demand.

27 M A N A G E M E N T R E P O R T IV. Outlook Industry and turnover Since the market for frozen food in Germany grew faster again in 2000 and frozen food is also in great demand at the beginning of the new year, we expect the market to continue to grow in the coming year. Consumption of frozen food will increase in our focus countries, Poland, the Czech and the Slovak Republics, Hungary and Romania, even faster than in Germany, while we are foreseeing a similar trend for Austria and Italy to that in Germany. The large Western European markets, such as France and Great Britain, continue to be occupied by familiar and competitive brands so that we will be concentrating there, as in the past, on private brands. Our goal is to grow faster than the market. On account of the altogether stronger FRoSTA brand in our focus countries, and intensive servicing of private labels, we are confident that we will be able to achieve our sales target of DM 550 million to DM 600 million for Capital expenditure With planned capital expenditure of some DM 19 million, our investment volume will be considerably lower in 2001 than in the previous year. In addition to bringing ready meals online in Bydgoszcz, we will concentrate on integrating the major investments, that were completed at the end of 2000, successfully and with full productivity in our production processes. Procurement costs We expect a slight increase in the world market prices for fish raw materials expressed in dollars in A further significant increase in costs in the packaging area and for fuel and energy is expected, since the raw material prices have increased worldwide. Employees There will be no significant change in the number of employees in 2001.

28 M A N A G E M E N T R E P O R T Financing Our medium-term goal is to get back to an equity ratio of 30%. We should be much closer to this goal by the end of the year as a result of the considerably lower level of capital expenditure activities in Future organization, administration and legal corporate structure Our organization structure is in line with the future requirements. We are not planning any significant changes. For future changes concerning the Executive Board please refer to the report of the Supervisory Board. Future environmental protection We will continue to work in 2001 on the systematic reduction of packaging waste in production. We will furthermore investigate whether the sewage recycling plant at the ELBTAL factory could also be used for the vegetable production facility at Rheintal. Future development of the earnings Earnings in 2000 were affected by a large number of special factors. We are expecting earnings in 2001 again at the level of earlier years, enabling the internal growth to be financed from internal resources and ensuring dividend continuity. 27 V. R&D report More than 200 projects were once again successfully concluded in 2000 in close cooperation with the marketing, purchasing and engineering departments. Twenty per cent of these projects related to new kinds of innovative products. Outstanding examples for this are provided by our four Filet di mar-variations: Tomato-Basil, Mustard-Onion, Spinach- Cheese and Peppers and Herbs. All four products are made from Alaska pollack wrapped in mixed vegetables and a tasty sauce. This new kind of product concept combines our core competences for fish, vegetables and international recipes in an ideal way.

29 M A N A G E M E N T R E P O R T We have introduced a company-wide innovation management system in order to further increase the innovative strength of FRoSTA AG. Encouragement of the creativity of FRoSTA s employees, the involvement of internal experts in the collection and selection of ideas and the deliberate support of the entire company from the Board to the production staff in the implementation of the ideas in production are the key elements of this system. Our goal is to develop even more new, attractive products and therefore substantially increase the share of innovative products in our turnover over the next few years. VI. Risk report 28 FRoSTA AG is exposed to tough international competition in its business activities. Successful survival in this competition necessitates unavoidable entrepreneurial risks. We employ modern controlling instruments for the observation, recognition and communication of risks, so that all decision makers are informed about the business trends and any risks involved, and to provide help in taking decisions on the guidance of the business. The controlling instruments employed are adapted regularly to the changing demands of the market. In addition to the general business risk, FRoSTA is also exposed to the following risks specific to the industry. The production of frozen food is capital-intensive. Modern production technologies require long-term guaranteed earnings that are continuously threatened by the competitors. Intensive market research enables us to identify market trends in good time and to react to changes with innovative products. Our broad customer structure, based on own and private brands and supplying home services, catering and industry customers, cushions us against fluctuations in individual market segments. The increasing concentration of the retail trade and its tough competition intensify the risk of payment defaults. We limit these risks by taking out credit insurance with the normal retentions, a persistent reminders system and internal credit limits.

30 M A N A G E M E N T R E P O R T FRoSTA purchases some of its raw materials from international markets. These goods are invoiced in dollars. Our purchasing price therefore is directly influenced by the development of the dollar exchange rate. We employ the customary market option transactions, in order to hedge the exchange rate. The use of currency hedging is precisely regulated in a procedural instruction, and compliance with this is monitored with the help of controlling instruments. Contract farmers cultivate a further portion of the raw vegetables for their own account. We have restricted the risk of harvest shortfalls through the different geographical locations of our production sites. We can sell any production surpluses through our industry sales at market prices. To ensure the availability of raw materials at competitive prices and of the qualities prescribed by us, we collaborate in the purchasing area with selected suppliers on a long-term basis. Bremerhaven, 16 March

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32 FINANCIAL STATEMENTS 31 I. Consolidated balance sheet FRoSTA AG II. Consolidated profit and loss account FRoSTA AG III. Consolidated cash flow statement IV. Movements on consolidated fixed assets FRoSTA AG V. Movements on fixed assets FRoSTA AG VI. Balance sheet FRoSTA AG VII. Profit and loss account FRoSTA AG VIII. Notes to the financial statements and the consolidated financial statements IX. Auditors report

33 C O N S O L I D A T E D B A L A N C E S H E E T at 31 December 2000 ASSETS Note No. DM 000 DM A. FIXED ASSETS I. Intangible assets (7) 1. Concessions, industrial property rights and similar rights and assets, and licences for such rights and assets 2,122 1, Payments on account ,213 1,943 II. Tangible assets (7) 1. Land, rights similar to land, and buildings, including buildings on land owned by others 69,407 58, Plant and machinery 51,147 36, Other plant, factory and office equipment 21,993 7, Payments on account and assets in course of construction 3,475 13, , ,837 III. Financial assets (7) 1. Interests in group undertakings Participating interests Long-term securities and shares in a cooperative society and shares in a cooperative society Employer's pension liability insurance , ,531 B. CURRENT ASSETS I. Stocks (6) 1. Raw materials and consumables 27,272 21, Work in progress 14,487 16, Finished goods and goods purchased for resale 34,470 36,398 76,229 73,929 II. Debtors and other assets (8) 1. Trade debtors 36,027 69, Amounts owed by group undertakings Other assets 23,202 18,243 59,231 87,669 III. Cash in hand and at banks (24) 1, , ,399 C. PREPAID EXPENSES AND DEFERRED CHARGES 1. Debt discount 1,080 1, Other ,832 1,712 BALANCE SHEET TOTAL 287, ,642

34 at 31 December 2000 C O N S O L I D A T E D B A L A N C E S H E E T LIABILITIES Note No. DM 000 DM 000 A. CAPITAL AND RESERVES I. Capital and reserves (9) 31,139 30,998 II. Subscribed capital (11) 14,212 13,972 III. Capital reserve (11) 1. Statutory reserve Other revenue reserves 35,344 35,123 35,569 35,348 IV. Accumulated deficit ( unappropriated profits) for the group (30) 7,936 1,830 72,984 82,148 B. UNTAXED SPECIAL RESERVE Value adjustment per Art. 6b EStG (12) C. SPECIAL RESERVE FOR FIXED ASSETS RELATING TO INVESTMENT GRANTS AND SUBSIDIES 19,878 16,916 D. PROVISIONS FOR LIABILITIES AND CHARGES 1. Provisions for pensions and similar obligations 3,748 2, Provisions for taxes 1,709 3, Other provisions (13) 28,831 21,613 34,288 27, E. CREDITORS (14) 1. Bank loans and overdrafts 91, , Trade creditors 44,831 32, Bills payable 5, Amounts owed to group undertakings Other creditors 18,140 13,891 thereof taxes DM 1,127,000 ( DM 1,047,000) thereof social security DM 1,877,000 ( DM 1,965,000) 159, ,811 F. DEFERRED INCOME BALANCE SHEET TOTAL 287, ,642

35 CONSOLIDATED PROFIT AND LOSS ACCOUNT FRoSTA AG For the year ended 31 December 2000 Note No. DM 000 DM Turnover (15) 537, , Decrease in stocks of finished goods and work in progress 4,120 4, Own work capitalized Other operating income (16) 4,614 4,704 thereof from release of untaxed special reserves DM 82,000 (1999 DM 103,000) 5. OPERATING INCOME +537, , Cost of materials a) Raw materials, consumables and goods purchased for resale 307, ,657 b) Purchased services 9,110 9, , , GROSS PROFIT +221, , Staff costs (17) a) Wages and salaries 67,964 66,214 b) Social security and pension costs thereof for pensions DM 936,000 (1999 DM 329,000) 13,694 12,275 81,658 78, Depreciation and amortization of intangible and tangible assets (5) a) Gross depreciation (18) 29,421 25,971 b) Release of special reserves for fixed assets relating to investment grants and subsidies (18) 4,128 4,020 25,293 21, Other operating charges (19) 107,689 96, OPERATING RESULT (EBIT) +6, , Income from investments Income from shares in a cooperative society Other interest and similar income 440 1, Interest and similar charges 5,962 6, Financial result 5,476 5, RESULT FROM ORDINARY ACTIVITIES +1, , Taxes on income (21) 839 7, Other taxes (22) Taxes 1,276 7, GROUP LOSS (1999 PROFIT) FOR THE YEAR , Loss brought forward from previous year a) Group profit brought forward from previous year (23) +1, b) Distribution to shareholders 9,299 8,055 7,603 7, Withdrawal from other revenue reserves Allocations to other revenue reserves 380 4, ACCUMULATED DEFICIT (1999 PROFIT) UNAPPROPRIATED FOR THE GROUP 7,936 +1,830

36 CONSOLIDATED CASH FLOW STATEMENT FRoSTA AG The consolidated cash flow statement based on DRS2 is presented below. Cash and cash equivalents are defined as the sum of cash in hand and at banks Changes DM 000 DM 000 DM Group loss (1999 profit) for the year ,378 13, Depreciation and amortization of fixed assets +29, ,971 +3, Increase in long-term provisions for liabilities and charges +1, Other charges and income not affecting cash flow Amortization of debt discounts Amounts released from special reserves 4,210 4, Result from disposals of fixed assets plus (1999 less) decrease (1999 increase) in asset value of pension liability insurance CASH FLOW +26, ,258 9, Increase (1999 decrease) in short-term provisions for liabilities and charges +5,630 1,085 +6, Decrease in stocks, trade debtors and sundry assets +25, ,603 9, Decrease in bank overdrafts 7,621 34, , Increase (1999 decrease) in trade creditors and sundry liabilities +21,752 2, , CASH PROVIDED BY OPERATING ACTIVITIES +72, , , Proceeds from disposals of fixed assets Additions to tangible assets 58,360 37,097 21, Additions to intangible assets 1,445 1, Additions to financial assets Allocation to special reserves for fixed assets relating to investment grants and premiums +7,090 +7, Adjustment to balance brought forward due to exchange differences CASH USED FOR INVESTING ACTIVITIES 52,792 30,461 22, Proceeds from increases in capital Dividends paid to shareholders 9,299 8,055 1, Proceeds from taking up bank loans 0 +14,960 14, Repayment of bank loans 9,365 10,397 +1, CASH USED FOR INVESTING ACTIVITIES 18,282 2,971 15, Changes to cash and cash equivalents affecting cash flow +1, Reduction in cash and cash equivalents due to change in composition of consolidated companies Reduction in earnings brought forward due to change in composition of consolidated companies Cash and cash equivalents at beginning of period CASH AND CASH EQUIVALENTS AT END OF PERIOD +1,

37 MOVEMENTS ON CONSOLIDATED FIXED ASSETS/FIXED ASSETS FRoSTA AG at 31 December 2000 Purchase and manufacturing costs Change in composition of B/fwd 1) at consolidated Reclassi- CONSOLIDATED FIXED ASSETS FRoSTA AG companies Additions fications Disposals I. Intangible assets DM 000 DM 000 DM 000 DM 000 DM Concessions, industrial property rights and similar rights and assets, and licences for such rights and assets 6, , Payments on account , , II. Tangible assets 1. Land, rights similar to land, and buildings, including buildings on land owned by others 120, ,094 7, Plant and machinery 196, ,795 1,415 1, Other plant, factory and office equipment 44, ,130 4, Payments on account and assets in course of construction 13, ,341 13, , , ,389 III. Financial assets 1. Interests in group undertakings Participating interests Long-term securities and shares in a cooperative society Employer's pension liability insurance FIXED ASSETS 381, , ,433 Purchase and manufacturing costs B/fwd at Re- FIXED ASSETS FRoSTA AG Additions classifications Disposals I. Intangible assets DM 000 DM 000 DM 000 DM Concessions, industrial property rights and similar rights and assets, and licences for such rights and assets 6,202 1, Payments on account ,385 1, II. Tangible assets 1. Land, rights similar to land, and buildings, including buildings on land owned by others 120,235 7,207 6, Plant and machinery 191,682 31,613 2,851 1, Other plant, factory and office equipment 43,928 15,043 4, Payments on account and assets in course of construction 13, , ,456 54, ,304 III. Financial assets 1. Interests in group undertakings 5, Participating interests Long-term securities and shares in a cooperative society Employer's pension liability insurance , FIXED ASSETS 381,456 56, ,349 1) The balances brought forward include exchange rate adjustments of + DM 285,000 to the purchase and manufacturing costs and DM 10,000 to the accumulated depreciation, amortization and write-downs.