Annual report

In the summer of 2007, we experienced a sharp rise in raw material costs. Particularly taxing was the swift rise in the price of our main ingredient, grains, to a whole different level from what we have been accustomed to in the last decade. It was the consequence of poor harvests in grain-producing countries, increased global demand and depleted stocks. Due to overdemand, there were also severe fluctuations in price levels.

Right from the beginning of the year, we found competition in Finland to be tougher than before. We began cutting costs and increasing efficiency in good time, but our measures were not enough to compensate for the raw material price rises. Thus, our financial results for fresh bakery products in Finland were only average.

We were again successful in renewing the market, however. We were the first producer in Finland to revolutionise the bread market with breads made of 100% wholegrain wheat, which were enthusiastically received by both retailers and consumers.

The overall results for our Baltic operations were good, and we exceeded our targets particularly in Estonia and Lithuania. Our operations there were affected by high inflation, labour shortages and cost increases, which we managed to balance out mainly with price raises. We launched important novelties in all markets and were successful in expanding the selection of wheat-based tin loaves throughout the Baltic region. Our VILJAKAS wheat breads were selected as the Bakery Product of the Year in Estonia in 2007, while our GOJA products received the gold medal in a Lithuanian product competition.

The powerful growth of sales in the bake-off sector continued, and our bake-off operations exceeded their targets. Our market position strengthened further, particularly in Sweden and Finland. We will continue to expand our bake-off operations organically and through acquisitions.

The Vaasan & Vaasan Group's crispbreads and thin crisps continued to succeed globally. Sales of FINN CRISP products increased, especially in the UK and in Russia; in the latter, some of our products received awards in the highly respected Innovative Foods 2007 competition.

In the summer, we had a change in ownership; our new owner, the international private equity company Lion Capital, specialises in investments in consumer industry and service businesses. Lion Capital's solid sector-specific competence, extensive resources and international experience will improve the Vaasan & Vaasan Group's opportunities for development even further. It also opens new doors for internationalisation. We aim to expand our business with further acquisitions.

Although we did not meet all of our targets for 2007, we did manage to set up an even better operating model, which is the basis for our operations in 2008. Our success is guaranteed by our competent and professional staff, who help to ensure that we will continue to bake the consumers' favourite products.

I would like to extend the warmest thanks to our staff, customers and partners for their contributions in 2007!

Matti Lappalainen
Managing Director