Toms Confectionery Group Annual Report 2004

CVR no. 56 75 93 28 The Annual Report contains 31 pages

Toms Confectionery Group

Annual Report 2004

Contents

Company information

3

Financial highlights and ratios

4

Management’s review

5

Expectations for the future

7

Special risks

7

Knowledge resources

8

Environmental matters

8

Signatures Statement by the Board of Directors and the Executive Committee Auditors’ report

9 9 10

Consolidated and parent financial statements for the year ended 31 December 2004 Accounting policies

11 11

Income statement

18

Balance sheet

19

Cash flow statement

21

Notes

22

Definitions and concepts used by the Toms Confectionery Group

30

Group companies

31

2

Toms Confectionery Group

Annual Report 2004

Company information Toms Gruppen A/S (Toms Confectionery Group) Toms Allé 1 DK-2750 Ballerup Telephone: Fax: Homepage: E-mail:

+45 44 89 10 00 +45 44 89 10 99 www.toms.dk [email protected]

CVR-no.: Established: Registered office:

56 75 93 28 30 January 1924 Ballerup

Ownership Toms Gruppen A/S is wholly owned by the foundation Gerda og Victor B. Strands Fond, Ballerup, Denmark. Board of Directors Vagn Genter (Chairman) Povl Ulrik Skifter (Vice Chairman) Director, Britannia Invest A/S Auriga Industries A/S (C) Jacob Jensen Holding ApS (C) Vilh. Nellemann Handelsselskab A/S (C) Britannia Invest A/S (M) Ivan Heine Hermansen Brdr. A&O Johansen A/S (C) Toftejorg Technology A/S (C) Birger Christensen A/S (C) Birger Christensen Holding A/S (M) Carl F. Petersen Holding A/S (M) Mads O. Krage

Jørgen Buhl Rasmussen President, Gillette Group AMEE Michael Ring Managing director, 8.8 Holding A/S Managing director, Stelton A/S AO Finans A/S (M) Carl F. Petersen Holding A/S (M) Lone C. Nielsen Production controller (ER) Gudrun Riber Factory Worker (ER) Søren Svenningsen Smith (ER)

Terje List Managing director, Matas A/S Executive Committee Jesper Møller Chief Executive Pebas A/S (M)

Henrik Frisch Group Director BornholmsTrafikken A/S (M) ____________________________________

Auditors KPMG Borups Allé 177 P.O. Box 250 DK-2000 Frederiksberg

(C) Chairman of the Board of Directors (VC) Vice Chairman of the Board of Directors (M) Member of the Board of Directors (ER) Employee representative

3

Toms Confectionery Group

Annual Report 2004

Financial highlights and ratios

DKKm

2004

2003

2002

2001

2000

Revenue Gross profit Operating profit before special items Operating profit after special items Financial items, net Profit from ordinary activities Profit from ordinary activities after tax Extraordinary items, net Net profit for the year

1,724.3 494.8 57.8 57.8 -23.8 34.0 21.3 0 23.8

1,670.5 473.7 40.1 -78.6 -38.3 -116.9 -101.6 0 -101.8

1,747.3 530.8 102.9 82.3 -30.5 51.7 32.7 0 32.0

1,477.6 479.3 94.5 94.5 -12.9 81.6 58.3 14.1 74.2

1,508.4 456.6 65.7 -0.5 11.9 11.4 16.4 13.8 29.7

Fixed assets Current assets Total assets Share capital Equity Minority interests Provisions Long-term liabilities other than provisions Short-term liabilities other than provisions Total liabilities and equity

470.7 633.4 1,104.1 3.5 400.7 1.2 59.3 277.0 365.9 1,104.1

531.3 687.0 1,218.3 3.5 378.8 3.7 62.0 257.5 516.3 1,218.3

668.2 705.7 1,373.9 3.5 464.1 3.5 80.3 307.1 518.9 1,373.9

581.7 695.7 1,277.4 3.5 432.0 0.0 113.6 2.0 729.8 1,277.4

645.6 517.0 1,162.6 3.5 719.6 0.0 64.4 65.1 313.5 1,162.6

Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Total cash flows

225.2 -16.3 4.9 213.8

34.5 -37.8 -79.4 -82.7

59.7 -166.8 73.5 -33.6

112.8 -501.8 187.6 -201.4

159.8 -45.5 -32.1 82.2

Average number of employees

1,524

1,646

1,804

1,496

1,550

44.1% 3.4% 5.2% 28.7% 173.1% 36.3% 14.8%

-61.0% 2.4% 3.3% 28.4% 133.1% 31.1% 9.5%

8.9% 5.9% 7.5% 30.4% 136.1% 33.8% 23.0%

43.8% 6.4% 7.4% 32.4% 95.3% 33.8% 16.4%

67.6% 4.4% 5.6% 30.3% 164.9% 61.8% 9.1%

Ratios Increase in operating profit * Operating profit margin * Return on investment * Gross margin ratio Liquidity ratio Solvency ratio Return on equity *

Long-term financial targets 15.0% 8.0%

37.5%

* Calculated on the basis of "Operating profit before special items". See also the Group's explanation of ratios last in the Annual Report. Financial highlights and ratios have not been restated to reflect the changed accounting policies. As from 2002 goodwill on purchase of companies has been entered as an asset in the balance sheet.

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Toms Confectionery Group

Annual Report 2004

Management’s review Report for the Group Principal activities The Toms Confectionery Group manufactures, markets and sells confectionery. Production takes place in Denmark, Sweden and the UK. The Group is organised into three Business Units: Denmark, Nordic and the UK. Business Unit Denmark manufactures branded products for sale to the Danish market and the other companies within the Group. Business Unit Nordic manufactures sugar confectionery at the factory in Sweden, primarily for sale to the Swedish market. Besides, Business Unit Nordic handles the sale of the branded products manufactured in Denmark to the other Nordic countries as well as Travel Retail. Business Unit UK primarily manufactures and sells Private Label products to the local market. In addition, Business Unit UK handles the sale to the British market of branded products manufactured in Denmark. Besides, sale to Developing Markets is handled through corporate functions which also include IT, quality control as well as finances. Developing Markets handles the activities on the export markets where Toms Confectionery Group wants to expand. The primary focus is on the North American market, but Developing Markets is also selling to the Netherlands, Germany and Iceland. Management The chief executive, Per Harkjær, resigned on 1 April 2004. Henrik Frisch, Group Director, was appointed temporary chief executive until 1 November 2004 when Jesper Møller took up the position as new chief executive. The Executive Committee now consists of Jesper Møller and Henrik Frisch. The trend in activities and finances Net profit for the year Consolidated revenue for the year was DKK 1,724.3 million against DKK 1,670.5 million last year, an increase of 3.2%. Operating profit before special items went up from DKK 40.1 million in 2003 to DKK 57.8 million in 2004, a growth rate of 44.3%. Restructuring expenses in 2003 totalled DKK 118.6 million, whereas there were no restructuring expenses in 2004. Thus, the result after tax was a profit of DKK 21.3 million in 2004 compared with a loss of DKK 101.6 million in 2003. This trend is to be seen in light of the fact that in the Annual Report 2003 the company expected a slight increase in revenue for 2004 and a significant improvement in profit. The increase in revenue in 2004 of 3.2% is mainly due to the developments in the UK and Sweden, which in local currencies reported a growth rate of 3% and 14%, respectively. The general trend on the Group's markets has in 2004 been neutral or slightly upward. Cost of sales in percent of revenue dropped from 71.6% in 2003 to 71.3% in 2004. This trend can be ascribed to improved efficiency and the closing-down of the factory in Holme-Olstrup, which commenced in 2003 and was completed in 2004. _____ 5

Toms Confectionery Group

Annual Report 2004

Net financial items represented an expense of DKK 23.8 million in 2004, down from DKK 38.3 million in 2003. The decrease is due mainly to less debt and favourable exchange-rate adjustment of debt in foreign currency. The Toms Confectionery Group’s share of the result for the year was a profit of DKK 23.8 million compared with a loss of DKK 101.8 million last year. The management considers the result for the year to be satisfactory. Balance sheet and changes in equity At year-end, the Group’s balance sheet total was DKK 1,104.1 million against DKK 1,218.3 million in 2003, a decrease of 9%. The working capital accounted for DKK 357.9 million or 20.8% of revenue against DKK 443.2 million and 26.5% in 2003. Net interest bearing debt was DKK 204.0 million at end-2004 compared with DKK 411.0 million at end-2003. The decrease is due to the development in operations and working capital. As at 31 December 2004, equity totalled DKK 400.7 million against DKK 378.8 million as at 31 December 2003, equal to equity ratios of 36.3% and 31.1%, respectively. Cash flows Owing to the development in operations combined with the changes in working capital, the Group’s cash flows from operating activities were positive by DKK 225.2 million, equal to an improvement over 2003 of 552%. Cash flows from investing activities were negative by DKK 16.3 million in 2004 against a negative cash flow of DKK 37.8 million in 2003. The majority of net investments in 2004 pertains to the manufacturing facilities in Denmark and the sale of the property in HolmeOlstrup. Cash flows from financing activities were positive due to debt restructuring from short-term to long-term loans combined with repayment of long-term loans. In 2003 these cash flows were negative by DKK 79.5 million due to repayment of long-term loans. Net cash flows in 2004 amounted to DKK 213.8 million (inflow) against DKK 82.7 million (outflow) in 2003. Development activities Expenses are currently defrayed in connection with the development of the product portfolio. The development activities comprise development of new products as well as continued development of existing products and concepts. All development costs in 2004 have been taken to the income statement.

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Toms Confectionery Group

Annual Report 2004

Expectations for the future The management expects that the price competition in the groceries sector will continue on all the Group’s markets in 2005. The underlying growth rate of the confectionery market in the geographic areas relevant to the Group is expected to be limited and on a par with inflation. Total Group revenue is expected to increase slightly and operating profit to improve as well.

Special risks General risks The Group’s most important operating risk is associated with the competitive trend on the market for groceries. In addition, the trend in world market prices of almonds, hazelnuts, cocoa, cocoa butter and gum arabic is subject to a special risk. Financial risks Interest rate risk As at 31 December 2004, the Group’s net interest bearing debt was DKK 204.0 compared with DKK 411.0 million in 2003. Gross debt amounted to DKK 335 million, including long-term debt of DKK 277.0 million which carried interest at the rate of 6-7%. Currency risks The Group’ currency exposure is partly due to an imbalance between income and expenses in each currency (transaction risk) and partly due to the Group comprising companies with another functional currency than Danish kroner (translation risk). Transaction risk: The Group defrays major costs in foreign currency for purchase of raw materials and the individual companies' revenue is in foreign currency. The Group’s foreign exchange policy dictates that cash flows in the major currencies (SEK, NOK, GBP, USD and CAD) are hedged between 60 and 100% up to twelve months ahead. The hedging is mainly done by using forward contracts and options. Translation risk: Net assets in foreign currency are not hedged as they do not represent very large amounts. Each line in the consolidated income statement and balance sheet can be affected significantly by a change in the rate of exchange of GBP and SEK. However, the effect on Group results will not be significant. Credit risk The Group’s credit risk is related partly to primary financial assets and partly to derivative financial instruments with a positive market value. Group policy for taking on credit risks entails that all major customers and other cooperative partners are being subjected to credit rating on an ongoing basis. Dealings with customers outside local markets are principally hedged. The counterparty risk on derivatives is solely managed by accepting counterparties with a satisfactory credit rating from an international credit rating agency. _____ 7

Toms Confectionery Group

Annual Report 2004

Knowledge resources The Toms Confectionery Group considers well-qualified manpower to be a strategic resource. Thus, it is essential for the success of the Group to attract and maintain employees with a high level of competence, and significant resources are therefore allocated to continued improvement of the qualifications of Group employees. They participate in both in-house and external course programmes.

Environmental matters The Toms Confectionery Group is eco-conscious and is, on an ongoing basis, committed to reducing the environmental impacts of the companies’ operations. The efforts to further reduce the contents of dry matter in the effluent from the factory at Helseholmen are being continued. This problem is tackled by modernising the production equipment and focusing on good working routines, minimising discharge of dry matter. At the factory in Ballerup several work processes have been changed resulting in fewer workplaces with monotonous, repetitive work. The composition of the effluent from the factory in Ballerup has also been improved in connection with the phasing out of debittering of apricot seeds.

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Toms Confectionery Group

Annual Report 2004

Signatures Statement by the Board of Directors and the Executive Committee The Board of Directors and the Executive Committee have today considered and approved the annual report of Toms Gruppen A/S for 2004. The annual report is presented in accordance with the Danish Financial Statements Act. In our opinion, the accounting policies elected are appropriate to the Group's and the Company’s circumstances so that the annual report gives a true and fair view of the Group’s and the Company’s assets, liabilities and financial position at 31 December 2004 and of the results of the Group’s and the Company’s activities and of the Group’s cash flows for the financial year ended 31 December 2004. The annual report is submitted to the general meeting for adoption.

Ballerup, 16 March 2005 Executive Committee: Jesper Møller

Henrik Frisch

Chief Executive

Group Director

Board of Directors: Vagn Genter

Povl Ulrik Skifter

Chairman

Vice Chairman

Mads O. Krage

Michael Ring

Terje List

Lone C. Nielsen

Ivan Heine Hermansen

Jørgen Buhl Rasmussen

Gudrun Riber

Søren Svenningsen _____ 9

Toms Confectionery Group

Annual Report 2004

Auditors’ report To the shareholders of Toms Gruppen A/S We have audited the annual report of Toms Gruppen A/S for the financial year ended 31 December 2004, prepared in accordance with the Danish Financial Statements Act. The company’s management is responsible for the annual report. Our responsibility is to express an opinion on the annual report based on our audit. Basis of opinion We conducted our audit in accordance with Danish auditing standards. Those standards require that we plan and perform our audit so as to obtain reasonable assurance that the annual report is free from material misstatement. Our audit includes examination, on a test basis, of evidence supporting the amounts and disclosures in the annual report. Our audit also includes an assessment of the accounting policies applied and significant estimates made by the management. In forming our opinion we also evaluated the overall adequacy of the presentation of the annual report. We believe that our audit provides an adequate basis for our opinion. Our audit has not resulted in any qualification. Conclusion In our opinion, the annual report gives a true and fair view of the Group’s and the Company’s assets, liabilities and financial position at 31 December 2004 and of the results of the Group’s and the Company’s activities and of the Group’s cash flows for the financial year ended 31 December 2004 in accordance with the Danish Financial Statements Act. Ballerup, 16 March 2005

KPMG C. Jespersen Statsautoriseret Revisionsinteressentskab

Sven Carlsen State Authorised Public Accountant

Torben Lange State Authorised Public Accountant

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Toms Confectionery Group

Annual Report 2004

Consolidated and parent financial statements for the year ended 31 December 2004 Accounting policies Accounting basis The annual report of Toms Gruppen A/S for 2004 is presented in accordance with the provisions of the Danish Financial Statements Act on large reporting class C enterprises. The accounting policies applied in preparing the consolidated and parent financial statements are consistent with those of last year. Recognition and measurement Assets are recognised in the balance sheet when it is probable that any future economic benefits will flow to the Group and that the value of the asset can be measured reliably. Liabilities are recognised in the balance sheet when they are probable and can be measured reliably. On initial recognition, assets and liabilities are measured at cost. Subsequently assets and liabilities are measured as described for each item below. On recognition and measurement, account is taken of any gains, losses and risks that arise before the time of presentation of the annual report and which prove or disprove matters existing on the balance sheet date. Income is recognised in the income statement as earned and includes value adjustments of financial assets and liabilities measured at fair value or amortised cost. In addition, expenses incurred to generate the earnings for the year are recognised, including depreciation, amortisation, impairment losses and provisions as well as reversals of amounts previously recognised in the income statement as a result of changed accounting estimates. Consolidated financial statements The consolidated financial statements comprise the parent Toms Gruppen A/S and subsidiaries in which Toms Gruppen A/S directly or indirectly holds more than 50% of the voting rights or otherwise has control. On consolidation intercompany income and expenses, shareholdings, dividends as well as intercompany balances and realised and unrealised intercompany gains and losses on transactions between the consolidated companies are eliminated. Investments in subsidiaries are eliminated at the proportionate share of the subsidiaries’ fair value of net assets and liabilities at the time of acquisition. Newly acquired or newly formed companies are recognised in the consolidated financial statements from the date of acquisition. Comparative figures are not restated for companies newly acquired, sold or discontinued. Purchases of new companies are accounted for using the purchase method of accounting, according to which the identified assets and liabilities of the newly acquired companies are measured at fair value at the time of acquisition. Provision is made for the cost of restructurings _____ 11

Toms Confectionery Group

Annual Report 2004

decided and announced in the acquired company in connection with the purchase. Account is taken of the tax effect of the revaluations made. Positive balances (goodwill) between the cost and fair value of identified assets and liabilities acquired, including restructuring provisions, are recognised under intangible assets and amortised systematically through the income statement based on an individual assessment of the economic life of the asset, however with a maximum period of 20 years. Before 2002 goodwill was written off immediately against equity. Goodwill arising from acquired companies may be adjusted until the end of the year following acquisition. Minority interests The subsidiaries’ items are included fully in the consolidated financial statements. Minority interests’ proportionate share of the subsidiaries’ results and equity is adjusted on an annual basis and shown as separate items in the income statement and the balance sheet. Translation of foreign currencies On initial recognition, transactions denominated in foreign currencies are translated at the exchange rate at the transaction date. Exchange differences arising between the rate at the transaction date and the rate at the date of payment are recognised in the income statement as financial items. Balances, debt and other monetary items denominated in foreign currencies are translated at the exchange rates at the balance sheet date. The difference between the exchange rates at the balance sheet date and the rates at the time the receivable or payable is created or recognised in the latest annual report is recognised in the income statement under financial income and expenses. Foreign subsidiaries and associates are regarded as independent entities. The income statement items are translated at an average exchange rate for the month and balance sheet items at the exchange rates at the balance sheet date. Exchange differences arising from the translation of the equity of foreign subsidiaries at the beginning of the year at the exchange rates at the balance sheet date and from translation of income statements from average exchange rates to the exchange rates at the balance sheet date are taken directly to equity. Foreign exchange contracts and other similar instruments are entered into for hedging purposes only. Gains and losses on foreign exchange contracts and other similar instruments where the hedged item is not recognised in the balance sheet are recognised in the income statement in the year in which the hedged item is realised. Derivative financial instruments Derivative financial instruments are used for the hedging of future assets and liabilities as part of the Group’s risk management procedures. Derivative financial instruments are initially recognised in the balance sheet at cost while subsequent measurements are made at fair value. Positive and negative fair values of derivative financial instruments are included in ‘Other receivables’ and ‘Other payables’, respectively. _____ 12

Toms Confectionery Group

Annual Report 2004

Change in the fair value of derivative financial instruments classified as and complying with the requirements for hedging of the fair value of a recognised asset or a recognised liability is recorded in the income statement together with changes in the fair value of the hedged asset or the hedged liability. Change in the fair value of derivative financial instruments classified as and complying with the requirements for hedging future assets and liabilities is recognised under 'Other receivables' or 'Other payables' as well as in equity. If the future transaction results in recognition of either assets or liabilities, amounts previously recognised under equity are taken from equity and are recognised at the cost of the asset or the liability, respectively. If the future transaction results in income or expenses, amounts deferred under equity will be taken to the income statement for the period in which the hedged item affects the income statement. For derivative financial instruments that do not comply with the requirements for being treated as hedging instruments, changes in fair value are recognised currently in the income statement. Change in the fair value of derivative financial instruments used for the hedging of net investments in independent foreign subsidiaries or associates is taken directly to equity. Income statement Revenue Revenue from sales of goods is recognised in the income statement if an invoice has been issued and the risk relating to the goods has passed on before the balance sheet date. Revenue is recognised exclusive of VAT and taxes and less discounts granted in connection with the sale. Cost of sales Cost of sales comprises direct and indirect costs, including depreciation, amortisation and salaries used to generate the year’s revenue. Selling expenses and distribution costs Selling expenses and distribution costs include expenses relating to freight, staff in the sales organisations, advertising and exhibition expenses etc., including depreciation and amortisation. Administrative expenses Administrative expenses comprise salaries, premises and other expenses attributable to administration, including IT and depreciation and amortisation. Other operating income and expenses ‘Other operating income’ and ‘Other operating expenses’ comprise items of a secondary nature in relation to the Group’s principal activities, including gains and losses on sales of property, plant and equipment. Restructuring expenses Restructuring expenses comprise expenses which contribute significantly to improved future earnings and which are also part of an overall project aiming at changing the business set-up. Restructuring expenses include severance pay, external and internal expenses for refurbishing _____ 13

Toms Confectionery Group

Annual Report 2004

and clearing premises, write-downs, removal expenses, expenses pertaining to termination of various contracts and expenses for external assistance, etc. Profits or losses on investments in subsidiaries The proportionate share of the pre-tax results of the individual subsidiaries is recognised in the parent’s income statement after full elimination of intercompany gains/losses. The share of the subsidiaries’ taxes is recognised under tax on profit from ordinary activities. Financial income and expenses Financial income and expenses include interest, gains and losses on securities, debt and transactions denominated in foreign currencies, amortisation of financial assets and liabilities as well as additions and allowances under the provisional tax scheme etc. Income taxes The parent is not jointly taxed with the subsidiaries. The Danish parent is comprised by the provisional tax scheme. Tax for the year, which consists of the year’s current tax and the change in deferred tax, is recognised in the income statement to the extent of the proportion that is attributable to the net profit or loss for the year and directly in equity to the extent of the proportion that is attributable to equity items. Any proportion of tax recognised in the income statement that is attributable to the extraordinary profit or loss for the year is allocated to this item while the balance is allocated to the profit or loss for the year from ordinary activities. Balance sheet Intangible assets Goodwill Goodwill is amortised over its expected economic life, which is determined on the basis of management’s experience within the individual business areas. Goodwill is amortised on a straight-line basis over the period of amortisation, which is not more than 20 years and is longest for strategically acquired companies with a strong market position and a long-term earnings profile. The carrying amount of goodwill is assessed continuously and written down to recoverable amount in the income statement if the carrying amount exceeds the future net income expected from the business or activity to which the goodwill relates. Development projects Development projects comprise salaries, amortisation and other costs directly and indirectly attributable to the Group’s development activities. Clearly defined and identifiable development projects are recognised as intangible assets where the technical feasibility of the project, the availability of adequate resources and a potential future market or development opportunity in the company can be demonstrated and where the intention is to manufacture, market or use the project if the cost can be measured reliably and it is probable that the future earnings can cover cost of sales, selling and administrative expenses as well as the development costs. _____ 14

Toms Confectionery Group

Annual Report 2004

Development costs which do not meet the criteria for recognition in the balance sheet are recognised as costs in the income statement as the costs are incurred. Development costs recognised in the balance sheet are measured at the lower of cost less accumulated amortisation and impairment losses and recoverable amount. After completion of the development work, development costs are written off on a straight-line basis over the expected economic useful life. The period of amortisation is usually 5 years. Intangible assets are written down to recoverable amount if it is lower than the carrying amount. An impairment test is applied to each asset and groups of assets, respectively, if there are any indications of diminution of value. Property, plant and equipment Property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. Cost includes the costs of purchase and expenses directly attributable to the acquisition until the asset is ready for use. In the case of assets manufactured by the company, cost includes direct and indirect costs of labour, materials, components and subsuppliers. Interest expenses and other borrowing costs are not included in cost. The basis of depreciation, which is cost reduced by any residual value, is spread on a straight line basis over the assets’ expected useful lives, namely: • • • • •

Manufacturing buildings Installations in buildings Plant, machinery and equipment Motor vehicles Computer equipment incl. basic software

30 years 10 years 5-20 years 4 years 3-5 years

Depreciation is recognised in the income statement under cost of sales, distribution costs and administrative expenses, respectively. Gains and losses on the disposal of property, plant and equipment are measured as the difference between the selling price less selling expenses and the carrying amount at the time of sale. Gains or losses are recognised in the income statement under ‘Other operating income’ or ‘Other operating expenses’. Investments in subsidiaries Investments in subsidiaries are recognised and measured in the parent’s annual report according to the equity method. Investments in subsidiaries are measured in the balance sheet at the proportionate share of the companies’ equity value, calculated in accordance with the parent’s accounting policies, after deduction or addition of unrealised intercompany gains and losses Subsidiaries with a negative equity value according to the financial statements are measured at DKK 0, and any receivables from these companies are written down by the parent’s share of the negative equity value to the extent the receivable is found to be uncollectible. If the negative _____ 15

Toms Confectionery Group

Annual Report 2004

equity value exceeds the receivable, the balance of the amount will be recognised under provisions to the extent the parent has a legal or constructive obligation to cover the company’s negative balance. The net revaluation of investments in subsidiaries is taken to the reserve for net revaluation by the equity method under equity to the extent the carrying amount exceeds cost. The purchase method of accounting is used in connection with purchases of subsidiaries, see the description above under ‘Consolidated financial statements’. Write-down The carrying amount of intangible assets as well as property, plant and equipment is assessed annually for indications of diminution of value, apart from what results from depreciation and amortisation. An impairment test is applied to each asset and groups of assets, respectively, if there are any indications of diminution of value. Write-down is made to recoverable amount if it is lower than the carrying amount. Inventories Raw materials, packaging and spare parts are measured at cost using the FIFO method. Writedown to net realisable value is made if it is lower than cost. The cost of finished goods and work in progress comprises the cost of raw materials, production wages and energy costs plus indirect costs. Indirect costs of production include indirect materials and labour as well as maintenance of and depreciation on machines, etc. used in the manufacturing process as well as the cost of factory management and administration. The cost of goods for resale and raw materials and consumables includes cost according to the FIFO method. Receivables Receivables are measured at amortised cost less write-downs for impairment to counter expected losses. Securities (Current assets) Securities consisting of listed bonds are measured at fair value at the balance sheet date. Dividend Proposed dividend is shown as an item under equity. Income tax and deferred tax Current tax liabilities and current tax receivable are recognised in the balance sheet as tax calculated on the taxable income for the year, adjusted for tax on prior years’ taxable income and for provisional taxes paid. Deferred tax is measured according to the balance sheet liability method on all temporary differences between the carrying amounts of assets and liabilities and their tax base. However, no deferred tax is recognised on temporary differences relating to goodwill which is not amortisable for taxation purposes. _____ 16

Toms Confectionery Group

Annual Report 2004

Deferred tax assets, including the tax value of losses available for carry-over for tax purposes, are recognised at the values at which they are expected to be used, either through set-off against tax on future earnings or through set-off against deferred tax liabilities within the same legal tax entity and jurisdiction. Adjustment is made of deferred tax relating to eliminations of unrealised intercompany gains and losses. Deferred tax is measured on the basis of the tax rules and tax rates applicable under the legislation in force at the balance sheet date in the respective countries when the deferred tax is expected to crystallise as current tax. Changes in deferred tax as a result of changed tax rates are recognised in the income statement. Other provisions Provisions are recognised when the company has a legal or constructive obligation as a result of a past event or an event existing on the balance sheet date and it is probable that an outflow of financial resources will be required to settle the obligation. Liabilities other than provisions Liabilities other than provisions are measured at net realisable value. Cash flow statement The cash flow statement is presented according to the indirect method. Cash flows for the year are divided into operating, investing and financing activities, the year’s changes in cash and cash equivalents, and the company’s cash and cash equivalents at the beginning and the end of the year. Cash flows from operating activities Cash flows from operating activities are calculated as operating profit for the year before special items, adjusted for non-cash operating items like depreciation, amortisation, impairment losses, provisions and working capital changes, interest and income taxes. Working capital comprises current assets accrued less short-term liabilities other than provisions excluding items included in cash and cash equivalents. Cash flows from investing activities Cash flows from investing activities include cash flows from purchases and sales of intangible assets, property, plant and equipment, and financial assets, including purchases of companies. Cash flows from financing activities Cash flows from financing activities include cash flows from the raising of and repayments on long-term liabilities and dividend payments to shareholders. Segment information Information is given about business segments and geographical markets. The segment information follows the Group’s internal financial management policies. Financial ratios The financial ratios definitions are given last in the annual report. _____ 17

Toms Confectionery Group

Annual Report 2004

Income statement 1 January - 31 December Parent Company 2003 2004

DKK '000 Group 2004 2003

Note

1,169,506

1,175,771

-828,273

Revenue

1,724,253

1,670,469

-824,931

11 Cost of sales

-1,229,475

-1,196,746

341,233

350,840

Gross profit

494,778

473,723

-225,334

-229,713

-341,159

-342,401

-63,659

-65,029

-93,431

-94,439

2,721

-589

Other operating expenses/income

-2,387

3,171

54,961

55,509

Operating profit before special items

57,801

40,054

-79,882

0

0

-118,628

-24,921

55,509

57,801

-78,574

-66,666

-4,724

10,638

4,884

3

Financial income

5,529

12,209

-36,127

-18,991

3

Financial expenses

-29,340

-50,502

-117,076

36,678

33,990

-116,867

15,271

-12,878

-12,685

15,271

-101,805

23,800

Profit before minority interests

21,305

-101,596

2,495

-209

23,800

Minority interests' share of the profits/losses of subsidiaries The Toms Confectionery Group's share of the net profit for the year

23,800

-101,805

-101,805

1

11 Selling expenses and distribution costs 11 Administrative expenses

2

Restructuring expenses Operating profit after special items

12 Income from investments in subsidiaries

Profit from ordinary activities before tax 4

Tax on profit from ordinary activities

Proposal for distribution of profit: -101,805

23,800

Net profit for the year

0

-10,000

Proposed dividend

-101,805

13,800

Retained earnings

_____ 18

Toms Confectionery Group

Annual Report 2004

Balance sheet Assets as at 31 December Parent Company 2003 2004

DKK '000 Group 2004 2003

Note

70,177 1,318 71,495

66,332 1,077 67,409

5 6

Goodwill Development projects Total intangible assets

66,332 1,077 67,409

70,177 1,318 71,495

135,495

122,498

7

Land and buildings

155,928

179,634

175,153

168,952

8

Plant and machinery

226,360

234,178

114

114

9

Other fixtures and fittings, tools and equipment

6,542

7,819

36,406

13,290

14,419

38,171

347,168

304,854

403,249

459,802

55,355

51,122

12 Investments in subsidiaries

0

0

55,355

51,122

Total financial assets

0

0

474,018

423,385

470,658

531,297

244,598

204,186

262,448

322,900

140,758

114,973

213,333

245,986

41,606

52,358

0

0

8,781

2,390

3,610

10,082

22,212

14,872

Other receivables

23,010

33,896

213,357

184,593

Total receivables

239,953

289,964

49,241

50,779

14 Securities

50,779

49,241

6,520

60,227

Cash

80,252

24,872

513,716

499,785

Total current assets

633,432

686,977

987,734

923,170

Total assets

1,104,090

1,218,274

10 Property, plant and equipment in progress Total property, plant and equipment

Total fixed assets

13 Inventories Trade receivables Receivables from subsidiaries 4

Income taxes

_____ 19

Toms Confectionery Group

Annual Report 2004

Liabilities as at 31 December Parent Company 2003 2004 Note

DKK '000 Group 2004 2003

3,500

3,500

15 Share capital

3,500

3,500

375,300

387,192

16 Retained earnings

387,192

375,300

0

10,000

Proposed dividend

10,000

0

378,800

400,692

400,692

378,800

0

0

1,221

3,716

49,702

53,561

53,764

50,395

10,593

5,270

19 Other provisions

5,576

11,634

60,295

58,831

Total provisions

59,340

62,029

254,707

213,978

276,981

257,500

254,707

213,978

276,981

257,500

40,021

39,900

52,000

40,021

59,894

0

Credit institutions, etc.

6,019

161,040

0

0

Instruments of debt

0

26,568

73,167

72,396

117,816

125,683

0

0

0

860

120,850

137,373

Other payables

190,021

162,057

293,932

249,669

Short-term liabilities other than provisions

365,856

516,229

548,639

463,647

Total liabilities other than provisions

642,837

773,729

987,734

923,170

Total liabilities and equity

1,104,090

1,218,274

Total equity 17 Total minority interests 18 Deferred tax

20 Bank debt Long-term liabilities other than provisions

20 Current portion of long-term liabilities

Trade payables Income taxes

21 Contingent liabilities 22-24 Notes without reference 25-26 Notes to cash flow statement

_____ 20

Toms Confectionery Group

Annual Report 2004

Cash flow statement Cash flow statement

DKK '000 Group

1 January - 31 December

Note

Operating profit before special items

2004

2003 57,801

Minorities' share of profit

40,054

2,495

-209

0

-118,628

-23,811

-38,293

0

92,888

76,916

81,752

113,401

57,564

Trade receivables

32,653

-17,812

Restructuring expenses Financial items Write-downs Depreciation and amortisation, including goodwill amortisation

Inventories

60,452

-11,608

Trade payables

-7,867

-17,423

Other payables

27,964

12,719

Provisions

-6,058

6,905

Other receivables

10,886

14,911

Minority interests

-2,495

209

Tax paid

-3,703

-10,920

225,233

34,545

Total cash flows from operating activities Total cash flows from investing activities

25

-16,278

-37,770

Total cash flows from financing activities

26

4,892

-79,459

Cash flows from operating activities

225,233

34,545

Cash flows from investing activities

-16,278

-37,770

Cash flows from financing activities

4,892

-79,459

Increase/decrease in cash and cash equivalents from cash flows

213,847

-82,684

Cash and cash equivalents at the beginning of the financial year

-86,927

-20,774

-1,908

16,531

125,012

-86,927

Unrealised gain on securities, market value adjustment of equity in subsidiaries at the beginning of the year and value adjustment of financing instruments Cash and cash equivalents at the end of the financial year

_____ 21

Toms Confectionery Group

Annual Report 2004

Notes Notes Parent Company 2003 2004

Note

DKK '000 Group 2004 2003

1 Segment information Primary segment analysis: Business areas (Sales from Business Units)

942,492 227,014 0 1,169,506

947,654 228,117 0 1,175,771

Revenue Denmark Nordic UK Total

877,933 436,237 410,083 1,724,253

872,899 412,297 385,273 1,670,469

933,273 790,980 1,724,253

879,387 791,082 1,670,469

Secondary segment analysis: confectionery industry

389,641 779,865 1,169,506

394,005 781,766 1,175,771

Revenue Sugar confectionery Chocolate Total 2 Restructuring expenses Restructuring expenses incurred in connection with the streamlining of manufacturing facilities and closing-down of factory in Denmark Parent Company:

0

Closing-down of factory in Holme-Olstrup, including write-down of assets, severance pay, etc.

0

79,882

0

0

Subsidiaries: Toms Confectionery Ltd. Restructuring of factories, severance pay

0

38,746

79,882

0

Total

0

118,628

10,592 -1,283 3,376 12,685

8,121 1,867 -25,259 -15,271

12,685 12,685

-15,271 -15,271

79,882

3 Financial income and expenses The parent's financial income includes DKK 1.4 million relating to consolidated companies and financial expenses include DKK 0.1 million relating to consolidated companies. 4 Income taxes 8,121 1,867 -25,259 -15,271

10,592 -1,283 3,569 12,878

-15,271 -15,271

12,878 12,878

Income taxes Prior year adjustment Adjustment of deferred tax

Analysed as follows: Tax on profit from ordinary activities Total In 2004, the parent recovered DKK 11.1 million in overpaid provisional tax for 2003. Provisional tax of DKK 12.2 million was paid for the income year 2004.

_____ 22

Toms Confectionery Group

Notes Parent Company 2003 2004

Annual Report 2004

Note

DKK '000 Group 2004 2003

5 Goodwill 76,906 0 76,906

76,906 0 76,906

-2,884 -3,845 -6,729 70,177

-6,729 -3,845 -10,574 66,332

Cost at 1 January Additions during the year Cost at 31 December Accumulated amortisation at 1 January Amortisation during the year Accumulated amortisation at 31 December Carrying amount at 31 December

76,906 0 76,906

76,906 0 76,906

-6,729 -3,845 -10,574 66,332

-2,884 -3,845 -6,729 70,177

6 Development projects 529 965 0 1,494

1,494 0 0 1,494

Cost at 1 January Additions during the year Disposals during the year Cost at 31 December

1,494 0 0 1,494

529 965 0 1,494

0 0 -176 -176 1,318

-176 0 -241 -417 1,077

Accumulated amortisation at 1 January Amortisation of assets disposed of during the year Amortisation during the year Accumulated amortisation at 31 December Carrying amount at 31 December

-176 0 -241 -417 1,077

0 0 -176 -176 1,318

310,154 -354 11,764 -68,493 253,070

321,883 -5,075 1,373 -8,027 310,154

-130,520 127 43,989 0 -10,738 -97,142

-88,825 785 3,196 -33,947 -11,729 -130,520

155,928

179,634

7 Land and buildings 242,981 0 1,044 0 244,025

244,025 0 11,531 -54,001 201,555

-74,654 0 0 -23,387 -10,489 -108,530

-108,530 0 39,078 0 -9,605 -79,057

135,495

122,498

Cost at 1 January Exchange differences and reclassifications Additions during the year Disposals during the year Cost at 31 December Accumulated depreciation at 1 January Exchange differences and reclassifications Depreciation on assets disposed of during the year Write-downs during the year Depreciation during the year Accumulated depreciation at 31 December Carrying amount at 31 December The value of land and buildings according to the latest public land assessment at 1 January 2004 was DKK 399 million.

_____ 23

Toms Confectionery Group

Notes Parent Company 2003 2004

Note

Annual Report 2004

DKK '000 Group 2004 2003

8 Plant and machinery 634,804 0 17,782 0 0 652,586

652,586 0 49,347 -103,709 -3,901 594,323

Cost at 1 January Exchange differences and reclassifications Additions during the year Disposals during the year Disposal to property, plant and equipment in progress Cost at 31 December

904,364 -1,815 60,497 -112,952 -3,901 846,193

895,666 -16,984 29,823 -4,141 0 904,364

-388,628 0 0 -37,770 -51,035 -477,433 175,153

-477,433 0 99,265 0 -47,203 -425,371 168,952

Accumulated depreciation at 1 January Exchange differences and reclassifications Depreciation on assets disposed of during the year Write-downs during the year Depreciation during the year Accumulated depreciation at 31 December Carrying amount at 31 December

-670,186 1,786 108,143 0 -59,576 -619,833 226,360

-567,833 11,790 2,000 -52,964 -63,179 -670,186 234,178

38,546 -197 1,375 -2,421 37,303

41,322 -440 4,519 -6,855 38,546

-30,727 248 2,234 0 -2,516 -30,761 6,542

-28,278 365 5,986 -5,978 -2,822 -30,727 7,819

38,171 10,518 3,901 -38,171 14,419

19,701 38,171 0 -19,701 38,171

51,382 5,785 8,478

11 Depreciation and amortisation Total depreciation and amortisation charges analysed as follows: (including goodwill amortisation) 47,474 Cost of sales 5,871 Selling expenses and distribution costs 7,548 Administrative expenses

61,437 5,995 9,484

64,773 5,921 11,058

65,645

60,893

76,916

81,752

9 Other fixtures and fittings, tools and equipment 9,785 0 0 -689 9,096

9,096 0 0 0 9,096

-9,499 0 617 0 -100 -8,982 114

-8,982 0 0 0 0 -8,982 114

16,078 36,406 0 -16,078 36,406

36,406 9,389 3,901 -36,406 13,290

Cost at 1 January Exchange differences and reclassifications Additions during the year Disposals during the year Cost at 31 December Accumulated depreciation at 1 January Exchange differences and reclassifications Depreciation on assets disposed of/scrapped during the year Write-downs during the year Depreciation during the year Accumulated depreciation at 31 December Carrying amount at 31 December 10 Property, plant and equipment in progress Cost at 1 January Additions during the year Addition from plant and machinery Disposals during the year Cost at 31 December

Total

_____ 24

Toms Confectionery Group

Notes Parent Company 2003 2004

Note

Annual Report 2004

DKK '000 Group 2004 2003

12 Investments in subsidiaries 180,419 252,917 -1,673 431,663

431,663 0 0 431,663

-380,191

-378,528

16,531 -66,666 48,647 3,151 -378,528 53,135

230 -4,724 0 13 -383,009 48,654

-2,220 55,355 53,135

-2,468 51,122 48,654

Cost at 1 January Capital increase in subsidiaries Sale of shares to Toms Webes Cost at 31 December Total value adjustments at 1 January Exchange differences, etc. in equity at beginning of year in foreign subsidiaries and to net profit for the year Profit from ordinary activities before tax in subsidiaries Of which effect of remission of debt - tax in subsidiaries Total value adjustments at 31 December Net carrying amount at 31 December Composed as follows: Offset against 'Receivables from subsidiaries' Carrying amount of investments in subsidiaries at 31 December Net carrying amount at 31 December

Subsidiaries: Ownership Registered office Toms Norge AS 100% Mjøndalen, Norway Toms-Webes AB 100% Habo, Sweden Toms Schokolade GmbH 100% Flensburg, Germany Toms Chocolate Sp zoo 100% Poznan, Poland Toms UK Holding Ltd. 100% Liverpool, UK Toms Confectionery Ltd. 100% Blackpool, UK Parrs Quality Confectionery Company Ltd. 100% Poole, UK Marcia Industri A/S 60% Nørre Åby, Denmark Dormant companies not included

13 Inventories 80,726 32,767 116,772 14,333 244,598

61,695 31,415 94,913 16,163 204,186

Raw materials and packaging Work in progress Manufactured goods and goods for resale Spare parts Carrying amount at 31 December

85,029 34,918 120,756 21,746 262,448

112,014 34,883 157,110 18,893 322,900

_____ 25

Toms Confectionery Group

Notes Parent Company 2003 2004

Note

Annual Report 2004

DKK '000 Group 2004 2003

14 Securities 51,028 225,273 -226,890 49,411

49,411 136,479 -135,005 50,885

163 -163 -170 -170 49,241

-170 170 -106 -106 50,779

Cost at 1 January Additions during the year Disposals during the year Cost at 31 December Total value adjustments at 1 January Value adjustments of sold securities Value adjustments during the year Total value adjustments at 31 December Carrying amount at 31 December

49,411 136,479 -135,005 50,885

51,028 225,273 -226,269 50,032

-170 170 -106 -106 50,779

163 -784 -170 -791 49,241

15 Share capital 3,500

3,500

Share capital at 31 December

2,000 750 612 136 2 3,500

2,000 750 612 136 2 3,500

The share capital consists of: 1 share of DKK 2,000,000 150 shares of DKK 5,000 each 306 shares of DKK 2,000 each 136 shares of DKK 1,000 each 20 shares of DKK 100 each Carrying amount at 31 December The parent owns treasury shares with a nominal value of DKK 150,000, corresponding to 3.7% of the share capital. The shares are valued at nil and are not included in the balance sheet. 16 Retained earnings

460,574 -101,805 0 16,531

375,300 13,800 -2,138 230

Carrying amount at 1 January Transferred from distribution of profit Financial instruments Exchange difference, etc. on equity at beginning of year

375,300 13,800 -2,138 230

460,574 -101,805 0 16,531

375,300

387,192

Carrying amount at 31 December

387,192

375,300

3,716

3,507

17 Minority interests Carrying amount at 1 January Share of the result for the period

-2,495

209

Carrying amount at 31 December

1,221

3,716

_____ 26

Toms Confectionery Group

Notes Parent Company 2003 2004

Annual Report 2004

Note

DKK '000 Group 2004 2003

18 Deferred tax Deferred tax relates to: -1,347

-985

-985

-1,347

38,371

40,418

Property, plant and equipment

Intangible assets

40,418

38,938

15,558

15,426

Current assets

15,629

15,708

-2,880

-1,298

Provisions

-1,298

-2,904

49,702

53,561

Carrying amount at 31 December

53,764

50,395

4,678 898 5,576

4,850 6,784 11,634

Due within the first year

52,000

40,021

Due after five years

12,000

95,000

19 Other provisions 4,550 6,043 10,593

4,372 898 5,270

Pension liabilities Restructuring expenses "Turbo på Toms" 2003 Carrying amount at 31 December

20 Bank debt 40,021

39,900

95,000

0

21 Contingent liabilities The parent has operating leasing agreements on the company's motor vehicles, copier and compressors. The leasing agreements expire at the end of year 2007. Total liabilities amount to approx. DKK 7.3 million. The parent has purchase contracts with respect to its raw material consumption up to and including the end of th 1st quarter of 2006. Total liabilities amount to DKK 169.6 million. Toms Webes in Sweden has provided security for an account with Danske Bank in Sweden, stated at SEK 15.1 million. In the UK, liabilities arising from the leasing of machinery and motor vehicles amount to approx. DKK 1.4 milli The parent has provided a guarantee to the Directorate of Food, Fisheries and Agribusiness of DKK 7.3 million. The parent Toms Gruppen A/S has provided security in an amount of approx. DKK 119 million for subsidiaries' credits. A letter of support has been issued to Marcia Industri A/S. The company's Executive Committee is covered by a value-based bonus programme.

_____ 27

Toms Confectionery Group

Annual Report 2004

Notes without reference Parent Company 2003 2004 Note

DKK '000 Group 2004 2003

22 Staff costs 297,078 19,969 1,232

271,836 19,383 1,102

Wages and salaries Pensions Other social security costs

400,016 34,527 3,999

425,676 39,230 8,294

318,279

292,321

Total

438,542

473,200

947

852

1,524

1,646

1,377 623 2,000

1,318 1,356 2,674

Average number of employees

Remuneration of the parent's Executive Committee amounted to DKK 5.1 million against DKK 5.7 million paid for 2003. The remuneration of the parent's Board of Directors was DKK 1.3 million. 23 Remuneration of auditors elected by the general meeting 600 870 1,470

620 415 1,035

Statutory audit Other services Total

24 Related parties Toms Gruppen A/S' related parties are: Control: The foundation Gerda og Victor B. Strands Fond and its Board. The foundation is domiciled in Ballerup and owns 100% of the shares in Toms Gruppen A/S. Other related parties: In addition, the company's related parties include the rest of the Board of Directors, the Executive Committee and managerial employees as well as these persons' family members. Furthermore, related parties include companies in which the above group of persons has material interests. Related party transactions: Trade with subsidiaries is on arm's length terms. Legal services are rendered by the law firm to which the chairman of the Board of Gerda og Victor B. Strands Fond is attached.

_____ 28

Toms Confectionery Group

Annual Report 2004

Notes to cash flow statement

DKK '000 Group 2004

2003

Purchase of property, plant, equipment and operating assets Sale of property, plant, equipment and operating assets Development projects

-83,949 67,671 0

-44,646 7,841 -965

Total

-16,278

-37,770

25 Cash flows from investing activities

26 Cash flows from financing activities Distribution of dividend

0

-20,000

Change in long-term liabilities and instruments of debt included under short-term liabilities

4,892

-59,459

Total

4,892

-79,459

_____ 29

Toms Confectionery Group

Annual Report 2004

Definitions and concepts used by the Toms Confectionery Group

Definitions Return on investment

Operating profit before special items as a percentage of total assets

Working capital

Inventories and trade receivables less trade payables

Gross margin ratio

Gross profit as a percentage of revenue

Return on equity

Operating profit before special items as a percentage of average equity for the year

Liquidity ratio

Current assets as a percentage of short-term liabilities other than provisions

Operating profit margin

Operating profit before special items as a percentage of revenue

Solvency ratio

Equity as a percentage of total assets

Concepts Private Label

Manufacture and sale of products marketed under labels owned by other companies

Sugar confectionery

Gums, jellies, liquorice, toffees, drops, etc.

Travel Retail

Tax free, ferry and airport sales

_____ 30

Toms Confectionery Group

Annual Report 2004

Group companies Marcia Industri A/S Industrivej 9 DK-5580 Nørre Aaby (60% owned by Toms Gruppen A/S) Toms-Webes AB Bagaregatan 4 Postboks 501 S-566 28 Habo Sweden (100% owned by Toms Gruppen A/S) Toms Norge AS Postboks 264 N-3051 Mjøndalen Norway (100% owned by Toms Gruppen A/S) Toms Confectionery Ltd. Clifton Road, Marton Blackpool FY4 4QB United Kingdom (100% owned by Toms UK Holding Ltd.) Parrs Quality Confectionery Company Ltd. Alder Road Parkstone Dorset BH12 2AQ (100% owned by Toms Confectionery Ltd.) Toms UK Holding Ltd. c/o Toms Confectionery Ltd. Beech Street Liverpool L7 0HA United Kingdom (100% owned by Toms Gruppen A/S) Toms Schokolade GmbH (no activities) (100% owned by Toms Gruppen A/S) Toms Chocolate Sp Zoo (no activities) (100% owned by Toms Gruppen A/S)

_____ 31