Greenyard NV — Annual Report 2010

Apr 27, 2011

A N N U A L R E P O R T 2 0 1 0

the Art of Frozen

AN N UAL R EP O RT 201 0

Presented to the General Meeting of shareholders of the 20th of May 2011

Preface04
Outlook 2011 08
Operational development10
PinguinLutosa product portfolio 20
CECAB24
Sustainability28
Human resources 32
Corporate Governance statement1 34
Information for shareholders46
Consolidated annual report of the Board of Directors 50
Financial report 2010 62
Statement from the responsible persons144
Statutory auditor's report on the consolidated financial statements146
Condensed statutory accounts of the parent company PinguinLutosa NV, according to Belgian accounting standards150

preface

2010 was always going to be a difficult year. And so it proved to be. The potato division in particular had a great deal of difficulty with potato raw material prices that, in December, even tripled the previous year's prices. The deep-frozen vegetable division also encountered difficulties and was able only to a limited degree, if at all, to turn the lower raw material prices for vegetables into better net margins. Nevertheless, PinguinLutosa was able to limit the damage by responding to the early warning signals and taking appropriate measures.

The operating cash flow (EBITDA) amounted to €25.9 million, and operating profit (EBIT) was €7.3 million. The financial year 2010 closed with a net profit of €2.8 million.

Demand for both deep-frozen vegetables and frozen potatoes was as good as had been expected. However, after closing the sales contracts in the autumn of 2009, which ran for one year until the end of the summer in 2010, it was clear that sales prices achieved were too low and that the margins would therefore be too small until the end of September 2010. All hope was targeted at rising prices and margins in the 4th quarter of 2010.

It became a three-tiered problem for the potato segment. In May and June, the results for the first half of the year were stunted by an increase of 15% in the raw materials prices. In July and August, the potato price doubled in comparison with 2009 because of major harvest shortages caused by a heat wave. Finally, in the 4th quarter, the price of potatoes rose higher still due to torrential rains followed by a period of strong frost. As a result, at the end of the financial year, the price of potatoes was three times as high as it was at the end of 2009.

The new sales contracts had been negotiated with the appropriate degree of caution and forethought and shorter rather than longer contracts were negotiated to run until the end of January 2011. However, the price of raw materials rose more quickly than had been expected. As a result, the EBITDA of the potato segment reached €10.6 million.

The deep-frozen vegetable division always achieves its annual result in the second half of the year. As had been expected, the first half of the year was worse because of the low sales contract prices and high inventory prices in 2009, but all hope was placed on a margin increase resulting from a decrease in the price of raw materials in harvest season 2010. Unfortunately, the sector was not successful in keeping the sales prices stable and more margin was surrendered in the new sales contracts than gained by the raw materials price decrease. PinguinLutosa did succeed in limiting in the margin loss through product portfolio selection and optimisation. As a result, and partly due to an exceptional result from the industrial reorganisation in the United Kingdom, a good EBITDA of €16.5 million was achieved.

Management's attention continued to be focused on lowering the net financial debt. This resulted in a net financial debt of €66.8 million, a decrease of more than 27%. That was only possible through the strict and continuous management of the operating capital. Lower production and higher sales led to a substantial decrease in inventories.

As had been the case in 2009, the financial result was favourable due to the low market interest rates and a relatively stable exchange rate for the British pound.

On reflection, 2010 will turn out to have been a year to remember in a positive sense as well. The successful negotiations to take over the deep-frozen vegetable activities of the CECAB group (d'Aucy) and the strategically important partnership of the CECAB group through a capital injection of €10 million in PinguinLutosa will be a milestone in the history of the sector. The participation of the CECAB group confirms that PinguinLutosa is on the right path. The necessary increases to management were made in 2010 to ensure that the integration in 2011 would go smoothly.

2010 was also the year of a fundamental change in the raw materials markets. Since July 2010, a spiral of rising raw materials prices has been underway. Grain and oil prices began rising every month and reached historically high levels at the end of December. The predictions point to stabilisation in 2011 and 2012. Without a doubt, 2011 will be the 'Year of Supply'.

Over the past year, even more focus was given to margin and brand as flag-bearers of our new sales policy.

The mission of achieving a sustainable result through European market-leader and market-consolidation visions was reinforced in 2010 by a redefinition of the strategic pillars. Quality, sustainability and operational efficiency are the three pillars of the strategic policy. Leadership demands further internationalisation and innovation. The consolidation demands a strong financial structure and results. Strong efforts were made in this regard in 2010… the fruits of those efforts will come later. First, one must sow… then one may reap. PinguinLutosa is looking forward to the good harvest in 2011!

outlook 2011

The general economic context

In 2009, the world was in the throes of a financial crisis, with declining raw materials prices following in its wake. That movement turned around in mid-2010 and raw materials prices began to rise, driven by greater economic growth.

By the end of 2010, grain and energy prices were back at historically high levels! The dollar remained weak against the euro, which was making exports more difficult... Ultimately, the growth was achieved, although the growth was driven primarily by countries outside Europe and North America.

In 'Food Retail', 'Foodservice' and 'Food Industry', the buyers remained cost-oriented, however, with insufficient attention to innovation and quality. As a result, the producers' margins in 2010 were reduced further, which constituted mortgaging the future. Many companies in the food sector finished 2010 in a weakened condition. PinguinLutosa also went through that macro-economic situation, but prepared itself well for the recovery of the market in 2011 and took advantage of the takeover opportunities that presented themselves.

The deep-frozen vegetable market

After the good harvests in 2008 and 2009, 2010 was more of a moderate to poor harvest year. More important, however, was the decline in sowed acreage to avoid further inventory increases. Many companies in the sector were having to contend with working capital sources that were becoming more difficult, leading them to sell their inventories faster. These inventory financing problems in particular led to lower prices and pressure on margins during the negotiations for the new sales contracts for 2010-2011.

For 2011, price increases for the fresh vegetables are now a certainty and that has to be reflected in the market. Shortages are already making themselves felt before the new season even starts and renegotiations are going to be inevitable. The acreage is being expanded generally, but that is necessary in order to achieve normal inventory levels again, which will ensure good service levels.

The development of the 'convenience cuisine' activities in the deep-frozen vegetable division was positive. In the 4th quarter of 2010, the division in Langemark achieved full capacity utilisation. Management's attention here in 2011 will also be concentrated on achieving greater margins.

The potato market

2009 had ensured low potato raw material prices and low sales prices. There was a risk of poor raw material quality, however, due to bruising. The consequences on price levels were limited until April 2010, but did lead to price increases in May and June 2010. The heat wave at the end of June 2010 led to a peak in early potato prices and then the torrential rains and the early frost resulted in a new historical price peak in December 2010.

The year 2011 is therefore starting with very high raw materials prices. PinguinLutosa was alert under these conditions and limited the sales contracts until the end of January 2011 to a great extent. That made it possible for us to respond more quickly to these market trends.

The harvest in 2010 led to many small potatoes, resulting in production efficiencies until the end of June 2011 being lower than normal. The deep fry oil prices rose by 40% and the prices of packaging materials tracked the oil price increases to a certain degree. The potato prices for the new harvest starting in July will be markedly higher than they were last year and the contracts for raw materials in the autumn are already being set at higher levels.

The sales prices for potato products will therefore remain at high levels in 2011. PinguinLutosa is focusing on increasing margins and brand priority in 'Foodservice'.

Integration of the deep-frozen vegetable activities of CECAB

On 1 May 2011, the deep-frozen vegetable activities of the CECAB group, better known as 'd'Aucy Frozen Foods', are being taken over and from that moment will be consolidated. The management structure of PinguinLutosa has been prepared for this, in order to ensure good integration. Production programmes have already been prepared to be able to already achieve several synergies benefits in 2011.

operational development

Deep-frozen vegetable and convenience activities in Belgium

The harvest and the production

Because of the weather conditions in 2010, PinguinLutosa has had to draw on all of its knowledge and experience to be able to process the products at a good level of quality: very dry weather in May and June, followed by a very wet 2nd half of the year, with a carpet of snow at the end of November to top things off.

For several vegetables, those extreme weather conditions led to harvests that were less than the budgeted volumes. With the weather in other countries, such as Poland and Hungary, also causing serious difficulties, there were several structural shortages with increased pressure on the markets in Europe.

The production finished at 75,905 tonnes, which was slightly less than budgeted. Due to rain, snow and frost, PinguinLutosa had slightly less production from November: fewer young carrots, fewer leeks, and fewer sprouts.

The move of the peel line from Langemark to Westrozebeke went well. With that decision, PinguinLutosa has brought quality even more under control and this also took some of the burden off the water-purification in Langemark.

For 2011, a joint production budget has been drawn up with the CECAB site in Comines, France, whose activities are being taken over entirely on 1 May 2011. This is the first step towards integrating that site into the group. This will make it possible for PinguinLutosa to optimise the lines of the 3 sites (Westrozebeke, Langemark, Comines), with each site specialising in particular products. Each of the three sites is expected to see an increase in production volumes in 2011. To achieve this, the necessary investments will be carried out.

The year 2010 was a critical turning point for Convenience Cuisine, the collective name for our convenience activities: soups and sauces, prepared and ready-to-eat dishes. That was certainly the case in the 4th quarter, when various projects could finally start after long and not always easy preparations, and the division got up to cruising speed.

That meant a sudden and rapid evolution to a near 100% utilisation level. This higher level of utilisation is expected to continue throughout 2011.

Supply Chain

In 2010, important steps were taken to optimise the internal supply chain. A renewed organisation with several dedicated roles and the benefits of the internal automatic transport system will clearly have a positive impact on the cost structure and service levels. With the increased volume, the Belgian deep-frozen vegetable division will show more movements at a lower total logistics cost. The objective is to achieve efficiency improvements of 12%.

Packaging activities

In 2010, the further optimisation of the packaging division was a key focus. The efforts led to efficiency improvements of nearly 14% and a strong increase in the packaging activities of 21%. To continue to achieve that volume, several other optimisations of the current lines are scheduled and the transition to specific night shifts is planned.

At the end of 2010, Convenience Cuisine was able to acquire a complete packaging line that substantially increased capacity for pouch packaging. This was badly needed. This packaging line can pack both the normal pouch packages and the stand-up pouch packages (the so-called 'doypacks'), for which demand is increasing rapidly.

There is a clear trend that more customers in Europe (and also in the United States, for example) will use this type of packaging in 2011 for the sale of complete meals. The doypacks have a large number of ease-of-use benefits at an attractive price for the consumer.

Organisation and integration

A great deal of effort was also put into the further integration of the commercial activities of 'Pinguin' and 'Lutosa' in Belgium. Meetings of salespeople from the various branches of the group are now structured to be held at the same time as the sales coordinators' meetings from the two divisions, which gives strong impulses to the mutual understanding of each other's issues.

The internal salespeople from the two divisions now work every day in close consultation with each other.

For both road and sea transport, there is a close cooperation between the two divisions. For grouped shipments, common rates have been developed for several countries. The transfer of goods from production sites of one division to warehouses of the other is now done in a structured way in accordance with well thoughtout procedures.

The transition into SAP® at the potato division in 2011 led to Pinguin and Lutosa now working with a single common IT platform, which makes the exchange of information much easier and further improves the efficiency of the operations.

Deep-frozen vegetable activities in the United Kingdom

The harvest and the production

The contracted volume for peas was reduced in 2010 as a result of the good pea harvest in 2009. This falls within the strategy of optimising the operating capital requirements even further. The inventory of peas went from comfortable to challengingly low. The lower volumes for peas did, however, have a negative impact on the profitability and efficiency of the production sites.

The stocks of other vegetables were more than adequate before the new harvest of 2010. Early frost and snow affected the harvests of cabbage and root vegetables. Those shortages had an impact on the supply chain. The spring harvest in 2011 may help to achieve the volumes required, but that is more uncertain and more expensive.

Raw materials prices and energy inflation are putting profitability under pressure. As a result, prices for finished products will have to be increased in 2011 in order to maintain the total margin.

In 2010, PinguinLutosa UK worked further on the consolidation of the 3 sites in the United Kingdom, with a focus on efficiency. In April, PinguinLutosa Foods UK moved to the new offices in King's Lynn, where the new headquarters of the UK activities are located.

The opening of the new development centre for new products and the centre for quality guarantee in King's Lynn are expected in the second half of 2011.

Supply Chain

In April 2010, the joint venture with Partner Logistics in Wisbech started. The fully automated warehouse combines the storage and distribution of the packaged inventory of PinguinLutosa UK. The Belgian site uses a similar principle, which has already proven itself sufficiently. In 2011, the management in the United Kingdom will concentrate further on operational efficiencies.

Packaging activities

A major improvement of the main packing hall took place in August. The supply to the packing hall is now fully automatic, new lines have been installed and the rest of the equipment has undergone thorough inspection and maintenance.

With the planning application for a new supermarket and petrol station that was approved on 11 October 2010, Sainsbury finally got the green light for its development. Freeing up the front part of the site in King's Lynn is expected for April 2011. In anticipation, Factory 1 was closed and it will be fully integrated into Factory 2.

The buildings will be expanded and, in addition to the new bean and carrot lines from 2009, a new 16 tonne/hour line will be installed for peas, beans, root vegetables and rice. This will be ready for the start of the new pea season in 2011.

Factory 2 will be the largest and most modern production facility for processing different vegetables in the United Kingdom.

Organisation and integration

The three factories (Boston, Bourne, and King's Lynn) are fully focussed on the production of deep-frozen vegetables and convenience. In the United Kingdom, PinguinLutosa does not have its own production facility for potatoes, but the United Kingdom is a very important market for both the deep-frozen vegetables and the potato division.

The sales teams of both divisions work from the same location in the United Kingdom, although the British potato division temporarily retains its original sales office in St Ives in addition. Most of the internal sales and administrative activities are also centralised and integrated in King's Lynn. The close proximity of these activities strongly benefits the integration and leads to commercial success. Clients are approached globally, with a product-driven specialisation being replaced by a segment or client approach. PinguinLutosa can therefore state with pride that complete commercial integration has been successfully implemented here.

Exchange rates

A weak pound/strong euro ratio is good for the competitive position of the deep-frozen vegetable division in the United Kingdom and bad for the imports from the continent of potatoes and ready-to-eat dishes. The weakening of the euro in mid-2010 put pressure on the sales prices for deep-frozen vegetables in the United Kingdom. However, the on-going strong euro and weak pound (under the influence of the government cutbacks in the United Kingdom) should make deep-frozen vegetables in the United Kingdom competitive against imports from the continent.

Potato activities

The harvest and the production

A potato season straddles two financial years, just like a vegetable season. The season starts with the early potatoes in July, which are processed immediately after harvesting, followed by the harvest of the consumer potatoes in September. Some of the consumer potato harvest goes into production immediately. The rest goes into the storage silos and using those stored potatoes, the production continues until June of the following calendar year.

Potatoes processed during the first six months of 2010 therefore originate in the harvest of 2009. That harvest was characterised by a long very dry period. The total harvest in 2009 gave sufficient returns and tubers with a high percentage of dry matter. While the latter did lead to better efficiency in the processing, it also resulted in a lot of poor quality product during processing due to bruising and black spots. The potato efficiency in processing was therefore under the multi-year average during the first six months of 2010.

The potato season 2010, with harvest in September 2010, was characterised by a dry and warm period in June and July 2010. The tubers were damaged and the size of the tubers was also less than the multi-year average. Those two factors resulted in a harvest with smaller chips.

The total harvest volume in 2010 ultimately ended slightly higher than that of 2009. Year on year, the harvests are increasing in Belgium. Due to the exceptional rainfall in September and October, the reaping the harvest was performed under very difficult conditions. The potatoes had to be stored wet, which can lead to storage problems in the silos. For this reason, the clients of the potato division called off many of the potato contracts early out of fear, some of them even before the end of 2010.

The potato price on the free market remained substantially under €100/tonne during the first six months of 2010. With the early potatoes in July and August, the price on the free market continued to rise throughout the autumn. At the end of 2010, the free market price had risen to three times that of the year previous. For PinguinLutosa, it is a major challenge to incorporate that increase into the sales prices. The increase is primarily due to the high demand in potatoes for export to Russia. The heat wave there caused a reduced harvest of 4 million tonnes, which is more than the total potato processing volumes in Belgium.

The increase of 2010 will continue into the first quarter of 2011, with free market prices between €250-€300/tonne. For many potato processors, these prices are much higher than expected. Many sales contracts concluded in September 2010 did not take such exceptionally high potato prices into account sufficiently. The spirit among the potato processors for the first quarter of 2011 is therefore somewhat low. Price developments in the second quarter are important: an early spring can significantly reduce the price.

On the international market, the prices of palm oil and sunflower oil have also increased substantially. The run on oil is comparable to the situation in 2008. Between the beginning and end of 2010, the market prices for both categories of oil increased by more than 60%. That increase could only be partly offset with longterm contracts for the two types of oil.

2010 was a year in which the production of the potato division peaked yet again. Driven by the strong worldwide demand and as compensation for the price pressures, the production programme was greatly increased. With the exception of the specialities line, production remained at maximum capacity throughout the year.

The heat wave in June caused some temporary difficulties at the start of early potatoes and the wet periods during the harvest in September and October caused many difficulties in the sorting lines and washing lines. In spite of all of the above, production volume was more than 7% higher than in 2009.

Impact of the harvest on the margins

Because the sales contracts that were concluded in September 2010 were formed under heavy competitive pressure, reduced margins were experienced until the third quarter of 2010, both in the sector and in PinguinLutosa. The sales volume increased by 14%. The markets outside of Europe especially contributed to that result.

With the expected price hikes for potatoes in the back of their mind, the potato division tried to place the sales prices as high as possible at the start of contract period 2010 (September). The market did not always follow PinguinLutosa in that strategy. In addition, the potato division decided to move to a shorter contract period rather than working with the traditional annual contracts. The potato division also drove up the day price volumes. As a result of its efforts, the average gross sales prices at the end of 2010 were substantially higher than the previous year.

Internal organisation & integration

For the potato division, 2010 was also about the further professionalisation of the organisation. In addition to setting up a clear management structure, several improved management tools were launched. These are being embedded even deeper in the organisation in 2011.

To make it possible to have even better management and to obtain even more management information, a start was made on replacing the existing ERP package with SAP. That meant that the potato division now has the same package as the frozen vegetable division. The full transition to SAP is being completed in the first quarter of 2011, which will also lead to additional optimisations and integration.

Supply Chain

In November 2010, in order to meet the increasing overseas demand, we introduced a night shift in the loading department at the site in Leuze-en-Hainaut.

In 2011, additional optimisation of the container loading and the container traffic is planned. That is necessary to make it possible to have the further increase of overseas sales go more smoothly. A not unimportant fact here is the management of the document flows that go along with the overseas shipments. There, too, several measures are planned for 2011 to make those flows faster and more efficient.

In addition, the potato division also took the first steps towards an integrated approach to the storage issue in 2009. Additional steps followed in 2010 with better coordination of the storage requirements for the deep-frozen vegetable and potato division, with our own warehouses being fully utilised before starting to store product externally.

Organisation and integration

Integration and cooperation are two elements that receive daily attention. The marketing activities for the entire group, for example, are managed by the marketing department that is headquartered in Leuze-en-Hainaut. The financial departments of the various Belgian sites of both the deep-frozen vegetable and the potato divisions are centralised in the site at Sint-Eloois-Vijve.

The implementation of the SAP system in the potato division was partly made possible by the key users in the deep-frozen vegetable division who trained their colleagues and assist those colleagues when necessary. This joint platform raises visibility.

Other important integration projects commenced in the areas of transportation and commercial strategy and market approaches. The aim of all of those activities is to serve the shared clients better still, in the most effective and efficient way.

Sales network

Further integration of Pinguin & Lutosa

The further integration of the sales teams of Pinguin and Lutosa followed in 2010, with both teams being fully integrated today. PinguinLutosa is now active in 105 countries, subdivided into 18 zones. Both deep-frozen vegetable and potato products are now being sold in every zone.

The further optimisation of those commercial structures was also a hallmark of 2010: increasing product knowledge of the sales teams and the selective further expansion of the client network. Further attention was also given to the standardisation of procedures and streamlining processes.

Further growth in spite of the crisis

While the consequences of the crisis were still strongly in evidence with low growth figures in Europe, some zones in the southern hemisphere were remarkably strong: Latin America, Africa, Australia, Japan and South-east Asia all saw strong growth. Further strengthening the relationships with the clients in those zones is, therefore, also a major action point for 2011.

Pinguin & Lutosa: many commercial strengths!

The local presence of PinguinLutosa remains one of the strongest pillars of the expansion policy. That presence not only resulted in better knowledge of the local markets, but also led to better profitability. The management of the sales teams, the local retailers and the distributors of Foodservice, a focused brand policy of Pinguin and Lutosa, as well as delivering products that meet the local taste preferences, are the strengths of that policy.

In a significant number of countries, being able to deliver both deep-frozen vegetable and potato products constitutes an important added value for the clients and a combined delivery of the two product groups is the ideal way to expand their product range in a cost-effective way.

Reducing logistics costs & improving efficiency

With the high relative importance of the logistic costs in an industry with large volumes and relatively low added value, the optimisation of the logistic processes was high on the agenda. In 2010, several major steps were taken in that regard. This has led, among other things, to:

• identifying and further optimising the flow of goods;
• improving sea transportation in the various facets, in view of the increasing importance of overseas sales;
• optimising and standardising the grouped deliveries in Europe;
• optimising the mixed cargos with both deep-frozen vegetable and potato products;
• simplifying the administrative processes in general.

And finally, a great deal of attention also went to make Pinguin-Lutosa's sales back office more efficient. Standardisation, formalisation and reporting were the keywords in this area for 2010. This remains an important principle in 2011.

The transition to SAP® in the potato division, which involved intense preparation and went live at the start of 2011, is intended to improve efficiency further, with all of the companies of Pinguin-Lutosa in Belgium using one and the same IT platform.

Markets

Europe

Over the past year, Western European has shown only very moderate growth. Some countries were not even able to equal the pre-crisis levels.

In Europe Belgium continues to be important for PinguinLutosa, accounting for 11% of the total volume. Belgium also had a special dynamic, with a growth figure above the European average. The good brand awareness of the 'Pinguin' and 'Lutosa' brands, as well as the strong presence in Foodservice, explain that trend.

PinguinLutosa also scores well in the countries around Belgium. Important centres of the population of those countries are only several hundred kilometres from the PinguinLutosa production companies. The Netherlands showed good development. Germany and the United Kingdom maintained relatively good levels, but Ireland in particular had a difficult year because of the local crisis. As a result of the high degree of concentration of the purchasing conglomerates in Food Retail and Foodservice, which were fighting a competitive battle between them, France was confronted with further pressure on prices and a decline in the sales of specialities and products with more added value. Nor was Southern Europe spared. The Iberian Peninsula, and especially Portugal, was suffering under the debt crisis. The reduced influx of foreign

tourists was compensated to a relatively high degree by local holidaymakers. In the traditional tourist destinations, such as Cyprus, Malta or Greece, the foreign tourists, and especially the English, stayed away in numbers, which was not without influence on the sales. Italy, on the other hand, held its own.

Scandinavia has traditionally been a small market for Pinguin-Lutosa. Nevertheless, progress was made in deep-frozen vegetable products, potato products and in convenience in this market.

Central and Eastern Europe saw good developments. In this zone, the consequences of the crisis were less severe and the sales could grow again strongly. The presence of the Pinguin-Lutosa branch in Vienna since 2009 also strengthened our presence in this region and made it possible for us to start up with several new major clients.

America

PinguinLutosa is active in the North American market with a number of niche products and specialities. Convenience products in particular score well there.

Brazil had good growth in 2010. PinguinLutosa has been active for several years with the potato division, and has built a strong presence throughout the country. Here, too, the possibility of delivering vegetables as well as potato products was an important stimulus for developing the sales activities. 2010 was also a year in which the commercial relationships were strengthened further.

But also in the rest of Latin America, the group marked up good growth figures thanks to the strong economic development of several growth markets.

Africa

In Africa, PinguinLutosa has established a firm foothold thanks to a focused policy of delivering deep-frozen vegetables along with potato products.

After the successful launch of sales in several countries in 2009 it was the turn of a new series of countries in 2010, with the result that PinguinLutosa is now active in more than 20 countries, not only in Food Retail but also in Foodservice.

With a number of large clients, the relationships here could also be deepened and strengthened thanks to the focused approach to specific marketing needs and the delivery of very specific supply-chain solutions. In the run-up to the Football World Cup, it was possible to make good growth in South Africa. It was also possible to retain those volumes after the World Cup and they are now stable factors.

Asia & Australia

Over the years, Japan has become an important market for PinguinLutosa. The demanding quality policy of PinguinLutosa has certainly paid dividends here: by responding very closely to the very high demands for quality, it was possible not only to develop an enviable position, leading to the situation where PinguinLutosa is today the largest European importer of potato products, but those exports also represented a permanent challenge for perfecting its quality system even more.

The presence in China with our own branch in Shanghai should be seen more as a local purchasing office. The team based there buys local, primarily frozen, varieties. Nevertheless, the potato division also saw a clear increase in sales of the 'Lutosa' potato products in China in 2010. Over the past year, Lutosa was chosen as the A-brand by one of the most important distributors in China.

In the rest of East Asia, PinguinLutosa now enjoys an extensive network in countries such as Thailand, Taiwan and the Philippines.

And finally, Australia developed to become a regular buyer of the whole range of PinguinLutosa products in 2010. Here, too, the local presence contributed substantially to the further stable expansion of the client network.

Clients

Traditionally, PinguinLutosa has been active in 3 market segments: 'Food Retail', 'Foodservice' and 'Food Industry'.

Where the deep-frozen vegetable division was more focused on 'Food Retail' private label, 'Foodservice', primarily under the 'Pinguin' brand, and a major section as a specialised supplier to the 'Food Industry', the profile of the potato division was somewhat different: a much larger share of 'Foodservice' under its own 'Lutosa' brand, and a smaller share in 'Food Industry'.

Food Retail

The intensifying concentration is leading to increasing pressure on prices. Purchasing techniques such as international tendering and reverse auctions are reinforcing that trend even more and in 2010, it was forced even higher by major competition among the retailers.

With its organisation, market knowledge, image, cost awareness, and commercial relationships, PinguinLutosa continues to be a major player in Europe and is arming itself to deal with these challenges. With the position of Lutosa in the Belgian Food Retail sector not being unimportant, here too additional investments were made in promotional support and radio advertising. With the slogan 'Schatjes van Patatjes' ('Darling chips'), 'Lutosa' is a solid brand throughout Flanders.

In several emerging markets outside Europe, PinguinLutosa made some selective advances in expanding the 'Pinguin' and 'Lutosa' brands, often in combination with the collaboration of local Foodservice distributors who also deliver to smaller, independent grocers.

Foodservice

In this segment, both the deep-frozen vegetable division and the potato division have a strong presence and their strengths were integrated further in 2010. The two Foodservice sales teams were integrated into a single team spanning the complete product range. Investments were made in the framework, with the result that PinguinLutosa now also has country-specific Foodservice catalogues and other communications materials for the benefit of its clients. Considerable efforts have also been made in expanding product knowledge further through training and educational materials.

Until 2010, supermarkets were the typical clients of the Convenience Cuisine products. In 2010, several new products and packages were developed for use in Foodservice. For testing purposes, several clients were closely involved with the new strategy and intensive workshops were held with a variety of end users. The success of those workshops and the enthusiasm among the end customers has resulted in several new contracts for large packages.

Food Industry

In the Food Industry sector also, 2010 was the year for further integration of our two divisions. After all, for an industrial customer, PinguinLutosa is interesting because of the very wide range of products it offers, the technical competencies of the sales teams and the possibilities for optimising the supply chain, such as delivering deep-frozen vegetables and potatoes at the same time, optimisation of the transportation models, delivering products with very specific requirements from specific factories, etc.

In some countries where the Food Industry sales are as yet less developed, 2010 was characterised by market exploration and selective prospecting. As we move to 2011, even more efforts will be put into the technical training of the sales team and further optimisations in production to meet a number of specific requirements that industrial clients have.

Products

Deep-frozen vegetable division

In the pure raw materials products, the scarcity was clearly in evidence: to start with, the deep-frozen vegetable division was confronted with drought at the start of the season, followed by rain, which made harvesting difficult and had a negative impact on the quality of the vegetables, followed by an early winter and, to conclude, the problems of harvesting the root vegetables, leeks, etc. Securing deliveries to existing clients under these difficult conditions was a top priority.

One of the most noteworthy new trends, which is being seen in both Food Retail and Foodservice, concerns the so-called Family Packs. These are the ready-to-eat products that are packed in large trays of 1.2 to 1.6 kg, and sold as family-sized packages. Particularly in the United Kingdom, the Family Packs have been adopted quickly by consumers and other supermarkets in Europe are now following that trend. In this area, Convenience Cuisine has a clear competitive advantage.

Potato division

The poor season also caused many problems in potato production: the lower quality of potatoes, small sizes, and sharp price increases, partly due to increased demand from specific countries, such as Russia. Here, too, ensuring deliveries to existing clients was key. The high degree of utilisation of the production system was partly responsible for the fact that little room was left to expand the range, although the launch of the Pom'Tapas Dip & Eat line in the speciality range should be mentioned here.

The demand from industrial parties for high-quality flakes with consistent quality also remained at a high level internationally.

Marketing

In terms of marketing, a number of important steps were taken again in 2010. Over the past few years, a great deal of effort has gone into developing a corporate identify for the group and outlining the future developments to come. In particular, the basis for the further expansion of the 'Pinguin' and 'Lutosa' brands was laid out.

In 2010, it was possible to devote more attention to making the outlined strategies more concrete. In that regard, we can report:

• further strengthening of brand-awareness for 'Pinguin' and 'Lutosa' in both Foodservice and Food Retail. That was accomplished through radio advertising in Belgium and the development of several new product lines under the 'Pinguin' brand in Food Retail in Africa, South America and Cyprus;
• streamlining all trade fair activities: we now work worldwide with the same look and feel at trade fairs, with an integrated PinguinLutosa booth;
• developing a common policy for the composition of catalogues for the 'Pinguin' and 'Lutosa' brands and developing PinguinLutosa country catalogues with an eye for local market conditions;
• developing sales-supporting communication material for distributors with the same layout and design being used around the world;
• standardisation and centralisation of all of the equipment used in the group. This made it possible to achieve some important synergies and cost savings.

All of these activities were possible because of the central marketing office within the group.

PinguinLutosa product portfolio

PinguinLutosa today offers a very broad portfolio of products:

Vegetables and vegetable mixes

Delicious vegetables, bursting with vitamins, tasty, easy to prepare and available throughout the year. Thanks to the vegetable mixes of PinguinLutosa, customers can serve hearty and colourful creations in no time at all. The range goes from traditional vegetables and mixes such as peas, beans, cauliflower, soup vegetables, broccoli mix, etc., to more exotic and sometimes less familiar varieties: lotus root, rapeseed salad, baby corn cobs, king hua mix, etc. Most of the vegetables are available in different sizes and cuts (cubes, slices, bars, etc.) depending on what they are to be used for. For the preparation of frozen vegetables, a variety of cooking methods are available, such as steaming, simmering, stir-frying, etc.

Aromatic herbs

Individually Quickly Frozen (IQF) herbs can be used to add taste to all of your dishes. In hot dishes, the soft-leaf herbs only are added at the end of the preparation. Other, woodier herbs are perfect taste-enhancers in stews. In cold dishes, the herbs are added during preparation. This gives the aromas time to blend with the other ingredients. A sample of the range: parsley, chives, onions, shallots, basil, etc.

Organic vegetables and organic vegetable mixes

PinguinLutosa offers an extensive range of organic vegetables to meet the demand for organic vegetables and environmentally friendly crops. These vegetables are primarily sold to industrial customers for further processing, for example to produce baby foods.

Fruit

PinguinLutosa does not process fruits at its own sites, but instead works with carefully selected partners. The selection and the harvest of the best varieties is carried out when the fruits are sweetest. Fruit from around the world, stored with care for your enjoyment. A sample of the range: strawberries, raspberries, blueberries, blackberries and red currants, berry mix, exotic fruit salad, etc.

Pasta and rice

IQF al dente only needs to be defrosted or regenerated. Ideal in combination with PinguinLutosa vegetable mixes or finished with our mini-portion sauces. A sample of the range: spaghetti, penne, farfalle, fusilli, etc.

Convenience cuisine

Convenience offers a large variety of vegetable recipes and applications. An extensive selection of al dente vegetables, prefried and grilled vegetables, spiced vegetables or vegetables with sauce. The Convenience range also includes soups, sauces and prepared vegetables in mini-portions (such as red cabbage with apple or creamed spinach), prepared dishes in trays, vegetable mixes in steam pouches (for steaming in the microwave). In close collaboration with the client, our R&D team creates all kinds of preparations to meet the taste requirements and preferences of the client.

PinguinLutosa also offers a wide selection of potato products, ranging from the traditional chips to the most diverse specialities:

Frozen chips

Pre-fried chips in various lengths and cuts, with or without the peel, with the possibility of a coating. Suitable for Food Retail (e.g. the 'Belgian' chips, Patat'Kids, crinkle cut, etc.), Foodservice and Food Industry.

The different production methods – the potato division uses different kinds of oil: vegetable oil for the traditional products, sunflower oil for the oven products – make different ways of preparation possible: traditional-style in the deep-fryer, baked to be crunchy and healthy in the oven, or heated up under the grill or in the microwave.

Potato specialities

An extensive range of specialities based on cut or grated potatoes or mashed potatoes:

• Pre-fried specialities based on cut potatoes (with or without the peel): cubes, slices, potato sections, Parisian potatoes, roast potatoes, etc.
• Pre-fried specialities based on cut potatoes with a coating of herbs (spicy and garden wedges).
• Mashed potatoes: natural or spiced, finished with olive oil, butter, cheese or herbs, ideal for retail, restaurants or the production of prepared meals.
• Specialities based on mashed potatoes: croquettes, duchesse, Pom'Pin, noisettes, etc. We haven't forgotten the children, with fun potato shapes ('Alphabet letters', animals), or potato waffles.
• Pre-fried specialities based on grated potatoes such as the rösti with different ingredients (onions, bacon, vegetables, cheese, etc.)
• Potato gratins, pure potato slices with a creamy sauce or in combination with vegetables (gratin dauphinois with leeks or Tartiflette).

Fresh refrigerated chips

In addition to frozen chips, the pre-fried refrigerated range is also growing strongly: here, too, there are various cuts and sizes available.

Flakes

PinguinLutosa produces potato flakes primarily for the Food Industry and Foodservice. The flakes are used in the production of instant mashed potatoes, gnocchi, as a stabiliser or as an ingredient for biscuits.

Organic potato products

PinguinLutosa also has a range of frozen organic chips and organic specialities: potato sections and natural mashed potatoes. In addition, organic potato flakes are also supplied for industrial uses.

CECAB

Introduction of the group

In 2010, a collaboration was concluded between the Pinguin-Lutosa Food Group and the French CECAB Group. The intention is for PinguinLutosa to take over the deep-frozen vegetable activities of CECAB on 1 May 2011.

In 2010, these activities represented approximately 150,000 tonnes, which means the collaboration will raise the total annual volume of the Group by approximately 25% to 750,000 tonnes, 420,000 tonnes of which is in deep-frozen vegetables and 330,000 tonnes in potato products.

One of the greatest benefits of this collaboration is the high degree of complementarity of the activities. CECAB is primarily active in geographic areas where PinguinLutosa was less strongly present: France, Central & Eastern Europe, and parts of Italy.

The takeover comprises a total of 7 factories:

• 2 in France
• 4 in Poland
• 1 in Hungary

In France, PinguinLutosa is now at a level of 130,000 tonnes, approaching the position of PinguinLutosa in the United Kingdom. The group is thereby strengthening its position in Food Retail, Foodservice and Food Industry.

The CECAB Group will continue to be responsible for the commercialisation of the products under the 'd'Aucy' brand, which will be produced and distributed by PinguinLutosa.

With the acquisition of the 4 factories in Poland, PinguinLutosa has succeeded in being less dependent in terms of sourcing, with several products, such as broccoli and onions being processed there. It should especially be noted that the deal with CECAB has also resulted in PinguinLutosa now being a major producer of fruit.

In addition, Poland represents a good commercial headquarters: first and foremost in Poland itself, a country that has a major internal market in its own right, with 38 million inhabitants and a growing market in frozen food products. In addition, there are the Scandinavian countries that are easily accessible from Poland. Not least, there are also Russian and the Baltic States, which are close to the border with Lithuania, close to the factory in Ełk. Poland is also a major supplier for the German market.

Through the acquisition of the factory in Hungary, our presence in Hungary creates commercial opportunities in the countries of Central Europe, Romania, Bulgaria and the countries of the former Yugoslavia.

In Italy, too, the CECAB Group had already developed a position that was also complementary to that of PinguinLutosa. CECAB is primarily active in Food Retail in Italy, while PinguinLutosa is a major player in Foodservice and Food Industry there. With this acquisition, Italy has definitely become one of the core countries of the Group, with volumes of more than 40,000 tonnes.

CECAB also had an enviable position in Brazil, with a particularly strong market presence in Food Retail in the state of São Paulo. Here, too, we see a similar scenario as we saw in Italy, where PinguinLutosa was primarily strong in Foodservice and Food Industry. And here, too, the collaboration between the two groups shows a high degree of complementarity, which will result in sales exceeding the cap of 30,000 tonnes. The expansion in Brazil is therefore strongly concentrated on pushing the Pinguin, Lutosa and d'Aucy brands.

With this greater international presence, PinguinLutosa has become the ideal partner for large international groups in Food Retail, Foodservice and Food Industry, with their various branches being able to be supplied from the factories with the lowest logistics costs.

In addition, the various CECAB factories provide a clear increase in production capacity, which is absolutely essential for ensuring the further growth of the group.

Collaboration with PinguinLutosa in the future

With the takeover of the deep-frozen food activities of d'Aucy in 2010, the first step was taken towards the integration of those activities into the existing PinguinLutosa activities: identifying the activities of the two parties and studying the potential synergies, in addition to working out the modalities of the collaboration in all of its aspects (organisational, financial, IT, legal, etc.).

In 2011, attention will primarily be devoted to making the collaboration more concrete in all aspects, in order to ensure that it runs as smoothly as possible:

• takeover of the production companies and the operational management;
• takeover of the local agro-organisation;
• setting up structures for intra-group raw materials management;
• integration of the sales teams of PinguinLutosa and d'Aucy;
• planning the logistics integration in terms both of raw materials and finished products;
• further implementation of the efficient organisation structures.

The PinguinLutosa group is organised into two divisions: the deep-frozen vegetable division and the potato division.

The deep-frozen vegetable division operates according to a fivecountry cluster system:

• Belgium, with units in Westrozebeke, Langemark and Comines (France);
• France, with units in Moréac and Ychoux;
• United Kingdom, with units in King's Lynn, Boston and Bourne;
• Poland, with units in Dabrowa, Lipno, Adamow and Ełk
• Hungary, with the unit in Baja.

Each of those clusters uses the same structure with responsibility for local supply of raw materials, its own production planning, internal sales and logistics organisation, budgeting & calculation of results, reporting, relationships with local governments, etc.

In addition, there are several working principles in place to ensure the efficient collaboration among the country clusters.

All of the marketing activities for the group remain centralised in Leuze-en-Hainaut.

sustainability

' Su sta inable development ' is development that meet s the need s of the pre sent without comprom is ing the ab ility of future generat i on s to meet the i r own need s .'

(Brundtland)

In addition to efficiency and absolute focus on quality, sustainability and good corporate governance are important pillars on which the strategy of PinguinLutosa is based. By taking the appropriate actions within the overarching framework of the 3 Ps (People, Planet, Profit), we want to contribute to a social environment that also provides opportunities for the generations that are to follow.

In 2010, concrete steps were taken by which the production units located in West Flanders report on sustainability through participation in the Sustainable Entrepreneurship Charter, which is an initiative of the Flemish Government, Voka and the Provincial Development Agency. As a participating company, the internal sustainability action plan and good corporate governance plan are subjected to annual external audits.

The framework of 10 themes by which the Sustainable Entrepreneurship Charter wants to formalise the internal action plan will be used even more as the starting point in 2011 for expanding the action plan further at the group level and implementing its principles. Several of the concrete, current points of action are shown below:

Sustainable agriculture

For PinguinLutosa, everything begins with agriculture. That also makes it a main theme in our sustainability policy. Sustainable growing uses practices that are economical, efficient, ecological and socially acceptable.

Our agronomists go deeper into this area through projects with clients and suppliers. By disseminating their knowledge to the growers, they encourage and motivate the growers to incorporate sustainability in all aspects of their policies. Central aspects in this respect include: limiting the negative impact on the environment, such as nutrient and pesticide residue, care for biodiversity, and sustainable use of water and energy.

Water

Our production processes are extremely heavy users of water. For that reason, all of the production units have been equipped since day one with an optimal water-purification installation and purified recovered water is used as much as possible within the limits of food safety and quality. To reduce the pressure on ground water by the production units as much as possible, many of the sites have already made the move to drinking-quality water supplied from the potable water system (in collaboration with the Flemish Water Agency). Linked to that, a practical study was launched at the beginning of 2011 at one of the production units to identify the possibilities for maximum reuse of the water-purification effluent as drinking water.

Energy

Given the nature of our production processes, all production units are also major consumers of energy, and energy savings are just as important economically than they are ecologically. In addition to the investments of the past few years in purchasing 100% green electricity and the optimisation of our own biogas-fuelled motors with the CHP that is connected, a number of concrete steps were taken in 2010. In various production units, for example, feasibility studies have been carried out into installing solar panels. One concrete result has been the installation of 4,521 solar panels at the production unit in Westrozebeke. The total installed power is 1,031.75kW peak. Annually, 890,000 kWh will be produced on average. That represents the annual energy consumption of approximately 255 households! In addition, in 2011, new feasibility studies will be carried out at several sites to make even more use of solar panels.

Packaging materials

In close consultations with our suppliers of packaging materials, we are continuously and with substantial success, investigating the possibilities of reducing the quantity of packaging materials while retaining the optimal assurances of quality. In addition, PinguinLutosa joined an IWT research project in 2010 to study the applicability of bioplastics for several product references in the group.

Carbon Footprint

By studying the flow of goods and through collaboration with other frozen logistics companies, PinguinLutosa is searching for ways to avoid unnecessary transport movements. The expansion of our partnership with Partner Logistics Europe in the United Kingdom could lead to a substantial CO2 reduction in goods distribution.

The processing of seasonal vegetables in the open air, or fieldgrown vegetables from our own region, also make a major contribution to CO2 reduction caused by the food chain. Those vegetables are grown in the open area (no greenhouses), in the most fertile soils and in a naturally mild and precipitation-rich climate.

To expand our sustainable mobility policy further, PinguinLutosa is taking part annually in initiatives such as 'I Kyoto', which focuses on sustainable commuting and encourages workers to commute sustainably.

Company strategy in the area of palm oil

In 2011, a breakthrough is expected concerning the company strategy related to the use of palm oil in the potato division. Palm oil is still the most used vegetable oil in the potato division. All of the efforts arising from the Round Table of Sustainable Palm Oil to create a supply-chain certification system is followed closely by the potato division. Today, clients are being offered the possibility to obtain the guarantee, via the Greenpalm certificates, that their products are being produced using sustainable palm oil. The availability of 100% RSPO palm oil for our uses is being monitored closely in consultation with the suppliers.

Valorisation of secondary flows

A team of environmental experts is at work daily to devise ways to process the remainders of waste and secondary flows from the various production processes as ecologically and economically responsibly as possible. They are constantly on the look-out for new recovery methods and new sales markets. By sorting the different secondary flows very precisely, the remaining waste is reduced to a minimum and the flow for recycle or reuse increases. Wood, cardboard, metals, plastics, vegetables, glass, etc. are collected separately by our own personnel.

Potatoes are known as a source of starch. When processing fresh potatoes into deep-frozen or refrigerated potato products, a great deal of starch is released during the cutting process in particular. Rather than allowing that starch to go through the entire water-purification process to biogas, it is more profitable in terms of energy to try to recover as much of that starch as possible from the process water. To achieve this, the potato division has invested in new technologies that have optimised the selective recovery and valorisation of raw starch from the process water. An important direct consequence is less burden on water-purification with a major decline in energy consumption as a result. The recovered raw starch has found uses in the textile industry and other areas.

human resources

Our personnel are our most important investment, which is why PinguinLutosa is convinced that its HR policy merits a great deal of attention and must be 100% in line with the strategic objectives of the company.

Quality care

Quality care is part of our culture. It is essential that we reaffirm that every day and watch over the details that ultimately determine the culture.

Quality care also means high-quality care for our personnel. That starts as early as the recruitment of our personnel, where candidates should feel that quality is not just a hollow phrase. And PinguinLutosa wants to continue to reflect that throughout the career of its personnel.

A high-quality personnel policy also means creating an environment where the qualities of the personnel are developed further. A high-quality personnel policy also includes a comprehensive evaluation strategy, where all of our personnel are regularly coached and managed as necessary.

Innovation

Innovation starts with ideas. From people. From employees. If the idea is about product development or operational/technical improvements, it will often have originated on the shop floor. PinguinLutosa has to create a framework within which the personnel are encouraged to propose improvements. Every manager has the task of listening constantly to his or her employees and to load them with questions. Before PinguinLutosa implements a new process, it is first tested out with the users. Recent history has taught PinguinLutosa that all of the innovations that it has launched have originated with its own personnel. PinguinLutosa is proud of that.

Internationalisation

The rapid growth of the PinguinLutosa Food Group has also had its impact on HR policy. In addition to working further on the integration of the different departments, PinguinLutosa will certainly be creating room to be able to share and implement best practices. Its international contacts make it possible to draw on a very large group of people and their ideas.

Operational excellence

In a world that is changing rapidly, PinguinLutosa is training its personnel in the new processes and how they are to be followed. In 2011, PinguinLutosa will be starting an intensive leadership programme with the aim of having each manager help his or her personnel raise the bar on their performance. This is one of the ways in which PinguinLutosa is safeguarding the balance between the strict processes and the individual strengths of each employee. As part of that programme, all job descriptions are being rewritten in detail, including the definition of individual performance indicators.

Sustainability

PinguinLutosa believes that sustainability goes to the heart of what the company is about. It is therefore intensely occupied with making its employees aware of sustainability.

Sustainability will only be part of the PinguinLutosa culture if it is reflected in the details of how things are done. Those details will not be found in flow charts; they will be found in the day-today behaviour of the employees. Management is therefore highly alert for signals in this respect within the company operations.

corporate governance statement

The general principles regarding the role and responsibilities, nomination procedures and the organization of the Board of Directors are set out in PinguinLutosa Group's Corporate Governance Charter. PinguinLutosa (hereafter: 'the Group') uses the Belgian Corporate Governance Code of 2009 as a reference. This Charter can be consulted on the website (www.pinguinlutosa.com).

The Group closely follows developments in this area and adapts its corporate governance structure if necessary. The Board of Directors regularly reviews the Corporate Governance Charter and adapts it where necessary. The Charter has been reviewed in 2009 following the changes in the Corporate Governance Code. In 2010 the Charter has been reviewed as well but according to PinguinLutosa no adjustments were necessary.

In accordance with the Belgian Corporate Governance Code, this chapter mentions the relevant events that have taken place during the past financial year. Where there has been a deviation from the Corporate Governance Code, this is explained.

Board of Directors

The Board of Directors defines the strategy of the Group and supervises the day-to-day management of the Group through its members who belong to the Management Committee. The Board of Directors meets at least six times a year. Decisions are taken in principle by a simple majority of votes. The company is represented legally and otherwise by one managing director together with an independent director.

Next to the managing director, who handles the day-to-day business of the company, there are at least three independent directors, including the chairman, to ensure an adequate balance.

The Chief Financial Officer (BVBA The New Mile represented by Steven D'haene) is invited to attend meetings of the Board of Directors as secretary.

Composition

At 31 December 2010 the Board of Directors consisted of 7 nonexecutive and 1 executive members. 3 directors are independent within the meaning of article 526ter of the Company Code.

Director's name	Date of appointment	Term of office ends on	Executive / non-executive	Independent / non-independent
NV Vijverbos • p.r. by Herwig Dejonghe	12/01/2000	AGM 2011	Executive	Non-independent
BVBA Management Deprez • p.r. by Veerle Deprez	09/11/2005	AGM 2011	Non-executive	Non-independent
Jo Breesch	14/11/2005	01/09/2010	Non-executive	Non-independent
Gert Van Huffel	12/10/2010	AGM 2011	Non-executive	Non-independent
NV Deprez Invest • p.r. by Hein Deprez	01/01/2010	AGM 2011	Non-executive	Non-independent
BVBA The Marble • p.r. by Luc Van Nevel	01/07/2004	AGM 2011	Non-executive	Independent
BVBA Marc Ooms • p.r. by Marc Ooms	09/11/2007	AGM 2011	Non-executive	Non-independent
Luc Vandewalle	09/11/2007	AGM 2011	Non-executive	Independent
Patrick Moermans	09/05/2003	AGM 2011	Non-executive	Independent

Mr Jo Breesch has resigned from his mandate with effect as from 1 September 2010 onwards and has been replaced by Mr. Gert Van Huffel. With his experience and commitment to the company, he has made a positive contribution to the effectiveness of the Board of Directors and the development of the company.

A number of members of the Board of Directors exercise their office through a registered company:

• BVBA The Marble is permanently represented by Mr Luc Van Nevel;
• NV Vijverbos is permanently represented by Mr Herwig Dejonghe;
• BVBA Management Deprez is permanently represented by Mrs Veerle Deprez;
• BVBA Marc Ooms is permanently represented by Mr Marc Ooms;
• NV Deprez Invest is permanently represented by Mr Hein Deprez.

During the past year the Board of Directors has been engaged with:

• The annual results, the annual financial statements and the annual report;
• Convening and setting the agenda of the General Meeting;
• Approval of budgets and investment projects;
• Regular assessment of activities;
• Approval of press releases;
• Reporting by the committee chairmen;
• Claims and litigations;
• Strategy of the company;
• Financing and optimization of the financial structure and club deal;
• Operational organization and transfer pricing;
• Reorganizations and changes in group structure and organization chart;
• Capital increase;
• Mergers and acquisitions.

The terms of office of all Board members expire after the Annual General Meeting of 20 May 2011.

Evaluation

Under the direction of the Chairman, the Board of Directors reviews its size, composition and functioning bi-annually, as well as the size, composition and functioning of the Committees and the interaction with the management team. This self-assessment is prepared by the Appointment and Remuneration Committee.

Audit Committ ee

The Audit Committee has been set up to assist the Board of Directors in reviewing the company's financial statements. It also helps the Board to check compliance with legal and judicial regulations, and to assess the competence and independence of the statutory auditor.

The Audit Committee has 5 members:

• Mr Patrick Moermans;
• Mr Gert Van Huffel;
• Mr Luc Vandewalle;
• BVBA The Marble, permanently represented by Mr Luc Van Nevel;
• BVBA Management Deprez, permanently represented by Mrs Veerle Deprez.

In accordance with article 526bis of the Company Code, the Group declares that the president of the Audit Committee, Mr Patrick Moermans, complies with the independence principles and disposes of the sufficient aptitudes with regard to accounting and auditing matters.

The Managing Director and the Chief Financial Officer are invited to the Audit Committee meetings.

The Audit Committee has been engaged in 2010 with:

• The half year and annual results and reviewing the consistent application and any changes in valuation and accounting principles;
• The course and evaluation of the external audit;
• Evaluation and control of the one-to-one rules;
• Set up of an internal audit function within the Group;
• Internal control;
• Various items of attention.

After every meeting the chairman of the Audit Committee reports to and advises the Board of Directors on these items.

Contrary to the Corporate Governance Charter and stipulation 5.2./28 of the Belgian Corporate Governance Code, the Audit Committee met on 3 occasions over the past financial year. The fourth Audit Committee meet was held on 17 March 2011, but dealt with 2010. It is the opinion of PinguinLutosa that this had no impact on the functioning of the Audit Committee. The statutory auditor was invited to these meetings and was present on two occasions.

Nomination and Remuneration committ ee

A Nomination & Remuneration Committee has also been established within the Board of Directors. The Nomination & Remuneration Committee supports the Board of Directors in the execution of its task in the preparation of the (re-)appointment of directors and appointments of the Members of the Management Committee, and in the execution of its tasks with respect to remuneration policy and the individual compensation of Directors and Members of the Management Committee.

The Nomination and Remuneration committee has 3 members:

• Mr Luc Vandewalle;
• The Marble BVBA, permanently represented by Mr Luc Van Nevel;
• Management Deprez BVBA, permanently represented by Mrs Veerle Deprez.

The Chief Financial Officer and Mr Gert Van Huffel are invited as well to the meetings.

The Nomination and Remuneration Committee met on 17 March 2010 and on 22 November 2010 to discuss, among other things:

• Determination of the variable remuneration for the executive directors;
• Remuneration of the corporate management team and other key managers.

Attendance

2010

Board of Directors	Audit Committee	Nomination and Remuneration Committee
5	3	2
7
6	2
5	3
2
7	2	2
6
7
7	3	2

Management Committ ee

The Group invests not only in machines, but more importantly in people. Continuing expansion, automation and optimization require a strong team of motivated and competent people. People are central to the company. A strong group spirit is nourished by a dynamic management team. Experience and new ideas need to go hand in hand.

The Management Committee consists per 31 December 2010 of:

• Herwig Dejonghe, Managing Director PinguinLutosa (CEO) and General Manager of the deep-frozen vegetable division;
• Steven D'haene, Financial Director PinguinLutosa (CFO);
• Erwin Wuyts, General Manager of the potato division.

The members of the Management Committee exercise their function through a registered company:

• NV Vijverbos, permanently represented by Mr Herwig Dejonghe;

.

• BVBA Dynobryon, permanently represented by Mr Erwin Wuyts;
• BVBA The New Mile, permanently represented by Mr Steven D'haene.

The Board of Directors has mandated the Management Committee to undertake the day-to-day activities of the company. In the light of the company's values, its approach to risk and the key elements of its policy, the Management Committee has sufficient leeway to present and implement the company strategy.

Independent auditor

The auditing of the company's annual accounts has been entrusted to Deloitte Bedrijfsrevisoren, represented by Mr Kurt Dehoorne.

This involves auditing the statutory annual financial statements of PinguinLutosa NV, Pinguin Langemark NV, Pinguin Salads BVBA, PinguinLutosa Foods NV, Vanelo NV, G&L Van Den Broeke-Olsene NV, PinguinLutosa Foods UK Ltd. and the consolidated annual financial statements of PinguinLutosa NV. As part of the consolidation exercise, partial audits were undertaken of the foreign subsidiaries Pinguin Aquitaine SAS, PinguinLutosa Deutschland Gmbh, M.A.C. Sarl, Pinguin Hong Kong Ltd., Lutosa France Sarl, Lutosa UK Ltd., Lutosa España SA, Lutosa América Latina Ltda, PinguinLutosa Japan K.K., PinguinLutosa Foods Shanghai Ltd, PinguinLutosa Italia Srl and PinguinLutosa CEE Gmbh.

Remuneration report

Procedure for the development of a remuneration policy and determining the remuneration level for the non-executive directors and the members of the management team

The compensation of the independent and the other non-executive directors is made up of a fixed remuneration and an honorarium for attending the meetings of the Board and the Committees within the Board (including attendance by video conferencing or telephone conferences), payable semi-annually. The compensation also pays due regard to a director's specific role, i.e. as Chairman of the Board of Directors, Chairman of member of a Committee, and the associated responsibilities and expenditure of time.

On the proposal by the Appointment and Remuneration Committee, the General Meeting can also decide to grant a fixed remuneration to one or more independent or other non-executive directors.

The compensation of the CEO and the members of the Management Committee is set by the Board of Directors at the recommendation of the Appointment and Remuneration Committee. The level of the compensation is to attract, motivate and retain highly qualified and promising management talent, and to ensure that the interests of managers and all stakeholders of Pinguin-Lutosa are aligned. The amount and the structure of the compensation are subject to an annual review.

The Company has not decided to make major changes to its remuneration policy over the next two financial years.

Remuneration of the non-executive directors

The Chairman of the Board receives a fixed remuneration of k€90 a year. He receives no additional remuneration such as fees for attending board or committee meetings.

Independent non-executive directors receive a remuneration that depends on their presence at board and committee meetings. This remuneration amounts to k€1.5 per meeting. The nonexecutive directors receive in addition a fixed remuneration of k€15 a year.

No variable remuneration was rewarded to directors in respect of 2010 with regard to their mandate. The total remuneration of Board members for the exercise of their office was k€261.

Remuneration of the executive directors

During financial year 2010, the only executive director was the CEO. With respect to his compensation for 2010, please see the section below.

In the financial year 2009 the two executive directors received remuneration amounting to k€510. This did include a variable remuneration amounting to k€6 relating to 2008.

Executive directors have a self-employed status, and receive a fixed remuneration that includes social security charges, taxes and group insurance. The remuneration paid to them includes the reimbursement of a number of expenses incurred on behalf of and for the account of the Group.

Remuneration of the CEO

The remuneration of the CEO (Managing Director) amounted to k€300 over the 2010 financial year. This did include a variable remuneration amounting to k€16 relating to 2009. The variable compensation was linked to the achievement of both qualitative criteria, taking into account individual performance, and quantitative criteria, taking into account the results of the entire PinguinLutosa Group. No additional compensation was paid as part of a pension scheme.

The remuneration of the CEO (Managing Director) amounted to k€290 over the 2009 financial year. This did include a variable remuneration amounting to k€29 relating to 2008.

The CEO has a self-employed status, and receives a fixed remuneration, which includes all social security charges, taxes, pension savings and a company car.

Remuneration of the members of the Management Committee

A number of Management Committee members have self-employed status, and receive a fixed remuneration which includes all social security charges, taxes, pension savings and a company car.

In 2010, members of the Management Committee (excluding CEO) received remuneration of k€329. This did include a variable remuneration of k€16 The variable compensation was linked to the achievement of both qualitative criteria, taking into account individual performance, and quantitative criteria, taking into account the results of the entire PinguinLutosa Group. No additional compensation was paid as part of a pension scheme.

In 2009, members of the Management Committee (excluding CEO) received remuneration of k€536. This did include a variable remuneration of k€34.

The decrease in 2010 compared to 2009 is due to the fact that there are now 2 members (in addition to 1 executive director) included in the committee for a full year, while last year there were 8 members, although a number of persons were only included part of the year in the committee.

No non-statutory benefits were paid out to directors, either in cash or in the form of share options or warrants. The remuneration paid to them includes the reimbursement of a number of expenses incurred on behalf of and for the account of the Group. These amounted to k€25.

Transactions with related parties

Pursuant to the Corporate Governance Code, the Board of Directors has developed a policy with respect to transactions with related parties that do not fall under the conflict of interest regulations. Under this regime, all Directors, their permanent representatives and all members of the Management Committee shall give prior notice to the Board of Directors of all proposed transactions between them and PinguinLutosa or one of its subsidiaries. Only the Board of Directors is authorised to decide whether PinguinLutosa or the subsidiary concerned may enter into such a trans-action. The Board of Directors will provide the reasons for its decision in its minutes and, in particular, will ensure that the transaction takes place at market terms. By way of exception, this prior approval by the PinguinLutosa Board of Directors is not required if the transaction concerned fits within the normal business activities of PinguinLutosa or its subsidiary. In that case, the Board of Directors shall approve all transactions annually.

Application Art. 523 of the Company Code

In June 2010 Ms Veerle Deprez and Vijverbos NV made temporary additional resources available to PinguinLutosa NV for a short period. More specifically, this involves an amount of €2.1 million made available by Ms Veerle Deprez and €0.3 million by Vijverbos NV. The interest charges on this disposal were charged to the half year figures at 30 June 2010.

Given that this disposal was made at market conditions and was temporarily used by PinguinLutosa NV as part of normal operations and in the context of optimizing the financing structure, this was in the interest of the company.

For these reasons, this funding was confirmed by the Board of Directors and interim results were approved.

More information concerning transactions with related parties is provided in heading "7.4 Related parties" in the Financial Report.

Capital structure

On 31 December 2010 the capital was represented by 11,570,631 shares, which have the same rights.

Shareholder structure

Based on the latest transparency declarations received by PinguinLutosa NV on 28 October 2010, the company's shareholder structure is as follows.

Shareholder structure 31/12/2010	Number of shares	%
STAK Pinguin	5,351,554	46.25%
Food Invest International NV (FII )	604,077	5.22%
Dejonghe family	60,167	0.52%
Total STAK, FII & Dejonghe family	6,015,798	51.99%
Public *	2,410,467	20.83%
Union Fermière Morbihannaise SCA	856,898	7.41%
KBC Private Equity NV	1,057,983	9.14%
Lur Berri SCA	934,264	8.07%
Tosalu NV	110,062	0.95%
SI LL SA	90,197	0.78%
Koramic Finance Company NV	52,068	0.45%
Volys Star NV	42,894	0.37%

Total	11,570,631	100.00%

*including shares at Primco, Degroof Corporate Finance and employees

Major changes in shareholder structure

On 28 October 2010, Union Fermière Morbihannaise SCA (CECAB group) subscribed for a €10 million share in the capital of the Group. In 2010 there were no other major changes in shareholder structure.

Elements which might have an impact in case of a public takeover bid

Pursuant to Article 34 of the Royal Decree of 14 November 2007 concerning the obligations of issuers of financial instruments admitted to trading on a regulated market, an overview of elements that could have an impact in the event of a public takeover bid for the shares of PinguinLutosa is shown below.

Statutory limitation to the exercise of voting rights

Article 8 of the Articles of Association of PinguinLutosa states that, if a shareholder has not fully paid up his shares as requested by the Board of Directors within the period stated by the Board of Directors, the exercise of the voting rights associated with the shares concerned will be legally suspended until such time as the payment has been completed. On 31 December 2010, however, the capital was fully paid up.

Shareholders' agreements that are known to the issuer and that could give rise to share transfer restrictions and/or limitations to the exercise of the voting rights

PinguinLutosa has knowledge of a number of shareholders' agreements entered into by STAK Pinguin and other shareholders:

1. Agreement of 1 September 2003 and September 2003, respectively, between STAK Pinguin and Volys Star NV and between STAK Pinguin and Société Industrielle Laitière du Leon SA (SILL)

Those agreements do not provide for special control rights for the parties. The parties have not made any voting agreements.

The shareholders' agreements include both a right of first refusal in favour of STAK Pinguin and a tag along right in favour of Volys Star NV and SILL, respectively. The aforementioned transfer restrictions apply to all transfers of shares:

• (a) On the basis of the right of first refusal, Volys Star NV and SILL, respectively, commit to first offer their shares in PinguinLutosa to STAK Pinguin, if they wish to transfer all or some of their shares in PinguinLutosa. The exercise period of the right of first refusal expires on 31 December 2013. The price at which the right of first refusal can be exercised is equal to the price offered by the prospective buyer to the perspective seller.
• (b) On the basis of the tag along right, Volys Star NV and SILL, respectively, have the right to sell their shares in Pinguin-Lutosa to a third party who acquires all or a majority of the shares that STAK Pinguin holds in PinguinLutosa. The tag along right can be exercised at the same price, conditions and modalities as those offered by the third party. The exercise period of the tag along right expires on 31 December 2013.

2. Agreement of 17 September 2003 between STAK Pinguin and Lur Berri SCA

STAK Pinguin and Lur Berri SCA have entered into a shareholders' agreement. That agreement does not provide for special control rights for the parties. The parties have not made any voting agreements.

The shareholders' agreement comprises both a right of first refusal and a tag along right. The aforementioned transfer restrictions apply to all transfers of shares:

• (a) On the basis of the right of first refusal, each shareholder (STAK Pinguin or Lur Berri SCA) that wants to transfer all of its shares in PinguinLutosa, commits to offer them first to the other shareholder (Lur Berri SCA or STAK Pinguin). The exercise period of the right of first refusal expires on 31 December 2013. The price at which the right of first refusal can be exercised is equal to the price offered by the prospective buyer to the prospective seller.
• (b) On the basis of the tag along right, Lur Berri SCA, to the extent that it does not exercise its right of first refusal, has the right to sell its shares in PinguinLutosa to a third party who acquires all or a majority of the shares that STAK Pinguin holds in PinguinLutosa. The tag along right can be exercised at the same price, conditions and modalities as those offered by the third party. The exercise period of the tag along right expires on 31 December 2013.

An anti-dilution clause has been included in the shareholders' agreement with Lur Berri SCA. To the degree that Lur Berri SCA would not be able to exercise its preferential rights to maintain the level of its participation in the event of a capital increase, a shareholders realignment or – in absence thereof – a transfer of preferential rights to Lur Berri SCA by STAK Pinguin or an additional issue of shares in favour of Lur Berri SCA has been provided for.

3. Agreement of 17 September 2004 between STAK Pinguin and KBC Private Equity NV

STAK Pinguin also has a shareholders' agreement with KBC Private Equity NV. It includes several provisions concerning the composition and the functioning of the Board of Directors:

• (a) Composition of the Board of Directors: STAK Pinguin has the right to submit a list of candidates for the appointment of four directors. KBC Private Equity NV has the right to submit a list of candidates for the appointment of one director as long as KBC Private Equity NV holds 5% of the shares of PinguinLutosa (on a fully diluted basis). Furthermore, STAK Pinguin and KBC Private Equity have made a voting agreement that at least three directors must be independent:
• (b) They also guarantee that the Chairman of the Board of Directors will be elected from among the independent directors.
• (c) A similar guarantee stipulates that the Board of Directors of PinguinLutosa will establish an Audit Committee and an Appointment and Remuneration Committee. The Appointment and Remuneration Committee will only comprise independent directors.

Further, this shareholders' agreement comprises both rights of first refusal as tag along rights that apply to all transfers of PinguinLutosa shares by STAK Pinguin or KBC Private Equity NV, respectively:

• (a) On the basis of the right of first refusal, STAK Pinguin and KBC Private Equity NV undertake, with respect to each other, that if one of them wishes to transfer all of its shares in PinguinLutosa, it must first offer the shares to the other. The price at which the right of first refusal can be exercised is equal to the price offered by the prospective buyer to the perspective seller.
• (b) On the basis of a first tag along right, KBC Private Equity NV, to the extent that it does not exercise its right of first refusal, has the right to sell its shares in PinguinLutosa to a third party who acquires 15% or more of the shares that STAK Pinguin holds in PinguinLutosa. The tag along right can be exercised at the same price, conditions and modalities as those offered by the third party.
• (c) On the basis of a second tag along right, STAK Pinguin, to the extent that it does not exercise its right of first refusal, has the right to sell its shares in PinguinLutosa if KBC Private Equity NV wishes to transfer its shares to an industrial partner. The tag along right can be exercised at the same price, conditions and modalities as those offered by the third party.

Important agreements that take effect, undergo changes or expire in the event of changes of control of the company

In the context of the Club Deal, a 'Change of Control' clause has been included in the 'EUR 140,000,000 Senior Multicurrency Term and Revolving Facilities Agreement', dated 8 January 2008 between the PinguinLutosa Group and the bank syndicate with ING Belgium NV as Lead Arranger, providing for the bank to demand repayment of the credit in the event of a change of control over the capital of PinguinLutosa.

Internal control and risk management

The Board of Directors of PinguinLutosa is responsible for estimating the risks that are specific to the Company and for the evaluation of the effectiveness of the internal control.

PinguinLutosa has an internal control system based on the COSO model. The following pillars are discussed below: 'control environment', 'risk management systems and internal control', 'financial reporting and communication', and, to conclude, 'oversight and monitoring'.

The management has implemented a variety of controls to manage the risks that could undermine the achievement of the strategic spearheads and axes.

Control environment

General

PinguinLutosa is dedicated to conscious risk management based on a strong and comprehensive internal control system achieved by encouraging a company culture in which all personnel is empowered to fulfil their roles and responsibilities in accordance with the highest standards of integrity and professionalism.

PinguinLutosa's internal control system is structured to contribute to achieve the strategic spearheads (operational efficiency, quality guarantee, and sustainable development) and axes (clients-personnel-supplier satisfaction, innovation, internationalisation, growth and brand awareness).

Audit Committee

The Audit Committee investigates the system for internal control and risk management set up by the management of Pinguin-Lutosa in order to confirm that the principle risks (including those related to compliance with legislation and regulations) are identified, managed and brought to the notice of the responsible individuals, in accordance with the framework established by the Board of Directors.

The Audit Committee investigates the specific regulations by which personnel of PinguinLutosa are able to express in confidence any concerns they have about possible irregularities concerning financial reporting or other matters. If it is considered to be necessary, arrangements will be made for an independent investigation and a suitable monitoring of these matters, in proportion to the alleged seriousness of the matter. Procedures are also being implemented by which personnel can inform the Chairman of the Audit Committee directly.

At least twice per year, the Audit Committee meets the auditor in the presence of the Management Committee to discuss with the auditor the subjects that fall under his remit and all matters that arise from the auditing process.

In addition, the management team is given a regular update on the pending disputes. In that respect, a quantified risk assessment and classification is always carried out.

Internal audit

The mission of internal audit is, along with the external auditor, to create an independent and objective evaluation of the risks and the internal control systems of the Group. The internal auditor formulates recommendations to the management for improving internal controls in terms of both efficiency and effectiveness. Functionally, the internal auditor reports to the Audit Committee. The Chairman of the Board of Directors also serves as a direct point of contract for the internal auditor. A conscious effort has been made to guarantee the independence of the internal auditor.

If necessary, the internal auditor calls on the support of a specialised external consultancy firm for the performance of his responsibilities. That makes it possible to place even higher demands and, at the same time, also stay up to date with respect to common practices within the internal auditing environment.

Risk management systems and internal control

The most important aspects of the risk management and internal control process can be summarised as follows:

• The risk position of the company, the possible financial impact and the required action points are evaluated regularly by the management and by the Board of Directors, advised by the Audit Committee;
• When the Board of Directors discusses the strategy and investment projects, an evaluation is also made of the associated risks. Where needed, appropriate measures are taken;
• The legal disputes that could have a material financial impact on the company are discussed quarterly in the Audit Committee;
• The internal audit reports are always discussed with local management and a summary is discussed with the Audit Committee every half year.

For a discussion of the principal risks and the associated control activities, please see explanation "6.20. Risk management policy" of the Financial Report.

Financial reporting and communication

PinguinLutosa's financial reporting and communication process can be summarised as follows:

A closing planning with checklist is drawn up with the tasks that must be accomplished by the quarterly, semi-annually, and annual closing of PinguinLutosa and its subsidiaries. The financial department provides the accounting figures under the supervision of the chief accountant. The controllers verify the validity of those figures and issue a report. Both coherence testing by making comparisons with historical or budgetary figures and transaction controls using random samples are done.

The Audit Committee supports the Board of Directors in overseeing the integrity of the financial information provided by PinguinLutosa. In particular, it confirms the relevance and the consistency of the application of the accounting standards used within the PinguinLutosa Group, and 'inter alia' on the criteria for the consolidation of the accounts of the companies of the PinguinLutosa Group. The oversight covers the periodic information before it is published and is based on the audit program used by the Audit Committee. Management informs the Audit Committee about the methods that are used for to account for significant and unusual transactions of which the accounting treatment could be open to a variety of interpretations. The Audit Committee discusses the financial reporting methods with both the Management Committee and the external auditor.

Oversight and monitoring

Oversight of the internal controls is exercised by the Board of Directors, supported by the activities of the Audit Committee.

The external auditor carries out an annual evaluation of the internal controls related to the risk associated with the financial statements of PinguinLutosa. In that regard, the external auditor of PinguinLutosa has made several recommendations concerning the internal control and risk management systems. The recommendations were contained in a management letter that was discussed with the management. The management has undertaken action points to handle with the findings and thereby achieve an even better control environment. Those points are being followed up by management as well as the internal and external audit functions.

For monitoring the effectiveness and efficiency of the internal control system at the group level, a risk universe and audit plan has been defined and validated by the Audit Committee. The internal auditor assesses the effectiveness and efficiency of the internal control structure on the basis of the audit plan and reports to the Audit Committee. In 2010, the internal control of the Belgian deep-frozen vegetable division was evaluated. No significant shortcomings were identified. For 2011, the work is expected to be expanded to the English deep-frozen vegetable division.

information for shareholders

Shares

PinguinLutosa's shares have been listed on Euronext Brussels (stock code: PIN) since 1 March 2005. The PinguinLutosa share was introduced onto the Brussels Stock Exchange in June 1999. PinguinLutosa has liquidity maintenance agreements with Bank Degroof and with Petercam.

The capital was represented by 11,570,631 shares, which have the same rights, on 31 December 2010. All shares were listed on the continuous market of Euronext Brussels, more specifically in the compartment C (small caps) of this market.

Market capitalization on 31 December 2010 was €111.9 million.

Share trading evolution

The table below shows the key figures of the PinguinLutosa share:

	Financial year 2010	Date	Financial year 2009	Date
Highest price	10.70 €	28/05/2010	11.38 €	09/02/2009
Lowest price	8.54 €	29/01/2010	8.47 €	30/07/2009
Opening price	8.99 €	04/01/2010	10.99 €	02/01/2009
Closing price	9.67 €	31/12/2010	8.99 €	31/12/2009
Average daily trading volume	2,474		1,419
Total number of shares	11,570,631		10,713,733
Market capitalization	111,888,002 €		96,316,460 €

The graph below shows the PinguinLutosa share price evolution during the 2010 financial year:

Closing Price PinguinLutosa

Trading volume

	04/01/10	18/01/10	01/02/10	15/02/10	01/03/10	15/03/10	29/03/10	12/04/10	26/04/10	10/05/10	24/05/10	07/06/10
Trading volume
The graph below shows the trading volume of PinguinLutosa shares by month:
Monthly trading volume								2010				2009
January							14,532			20,522
February							40,982			17,683
March							61,644				22,630
April								73,423			24,829
May							139,454					31,069
June							59,049				24,386
July								20,440				51,097
August								34,946				61,991
September					41,719			48,903
October					58,902				33,083
November						43,715				12,826
December						49,377				12,952

The average daily trading volume in 2010 was 2,474 shares, compared to 1,419 shares the year before.

Transparency notifications

Every shareholder with at least 5% of the voting rights is required to comply with the act of 2 May 2007 concerning the disclosure of the major holdings, the Royal Decree of 14 February 2008 and the Company Code.

The legal thresholds of 5% apply. The people concerned are required to send a notification to the Commission for the Banking, Finance and Insurance Commission and to the company.

On 28 October 2010 PinguinLutosa received a notification of participation from Union Fermière Morbihannaise Société Coopérative Agricole and updated joint notifications from M. Hein Deprez, Food Invest International NV and Stichting Administratiekantoor Pinguin (STAK) with respectively Société Industrielle Laitière du Leon SA, Volys Star NV, Lur Berri NV and KBC Private Equity NV.

An overview of all current notifications received by PinguinLutosa, and the corresponding shareholder structure, is available on our website www.pinguinlutosa.com under the heading "Financial information > Information for the shareholders > shareholder structure and transparency". The last transparency notification is published in the annual report of the company and on the website.

Notice according to article 74, §7, of the law of the 1 April 2007 regarding public takeover bids

From the notice dd. 30 August 2010, received pursuant to article 74, §7, of the law stated above, it appears that Mr Hein Deprez had indirect, via the companies controlled by himself (Deprez Invest NV, Deprez Holding NV, Food Invest International NV and 2D NV) and via the foundation controlled by himself (Stichting Administratiekantoor Pinguin (STAK)), on the 1st of September 2010 control over more than 30% of the shares carrying voting rights of PinguinLutosa NV. Mr Hein Deprez acts directly or indirectly in concert with other declaring persons, stated in the afore-mentioned notice. PinguinLutosa NV disclosed the integral statement on its website www.pinguinlutosa.com under the heading "Financial information > Information for the shareholders > OBA law".

Contacts

The investor relations team is available to answer shareholder and investor questions about the Group's activities, the share and other information requests (annual report, detailed accounts of PinguinLutosa NV):

For the attention of Mr Steven D'haene PinguinLutosa NV Romenstraat 3 B-8840 Westrozebeke (Staden) Or by e-mail: investorrelations@pinguin.be

Financial calendar

•	Trading update first quarter 2011:	27 April 2011 (17.45)
•	General Meeting of Shareholders:	20 May 2011 at 14.00
		at Langemark, Poelkapellestraat 71
•	Announcement half year results
	of the PinguinLutosa Group:	18 august 2011 (17.45)

• Trading update third quarter 2011: 27 october 2011 (17.45)

consolidated annual report of the board of directors

Dear Shareholders,

This annual report should be read in conjunction with the consolidated annual financial statements of PinguinLutosa NV and the related notes. These consolidated financial statements were approved for publication by the Board of Directors on 17 March 2011.

Key operating facts in 2010

Entrance of the CECAB group

On 28 October 2010, Union Fermière Morbihannaise SCA joined the community of shareholders of PinguinLutosa via a private placement for an amount of €10 million. The placement was done at a share price of €11.67.

This entrance reinforces our capital base and welcomes a major international group with a very professional organisation and a very strong connection to the agricultural community.

That combination will make it possible to serve our customers even better in the future and can lead to further growth.

International breakthrough of the Convenience activities

2010 was a critical tipping point year for Convenience Cuisine, the collective name for our convenience activities: soups and sauces, preparations and ready-to-eat dishes. That department definitely reached cruising speed starting in the 4th quarter, when a number of major projects got started.

That meant a sudden and rapid evolution to a near 100% utilisation level. That higher level of utilisation is expected to continue throughout 2011.

Harvests

After the good harvests in 2008 and 2009, 2010 was more of a moderate to poor harvest year for vegetables. Even more important was the decline in sowed acreage to avoid further stock increases. As a result, there will be new shortages even before the new season. Renegotiations will then be unavoidable.

The production returns for potatoes will be lower than normal until the end of June 2011. That is primarily due to the heat wave at the end of June 2010, the high levels of rain in the fall and the early frost that led to the 2010 potato harvest consisting primarily of small potatoes.

Production and market conditions

The volumes produced in the deep-frozen vegetable division – 186,100 tonnes – were substantially lower (-15.2%) than the levels in 2009. The United Kingdom returned to normal production levels after the record years of 2008 and 2009. That was primarily due to the good pea harvest in 2009. In 2010, less was sowed and normal results were seen in the fields.

Production in our Belgian and French vegetables sites declined by 11.0% and 29.6% respectively compared to 2009. As part of the restructuring plan at our French subsidiary, the decision had been taken before the season to reduce production by half by reducing the range. However, as a result of very good returns and the high quality, Pinguin Aquitaine was able to achieve higher production than had been foreseen in the initial plan. The Belgian production was revised downwards as part of a further specialisation and optimisation of the working capital. The final production targets were largely achieved in Belgium.

The potato division saw strong production increases of 8.0%. That was a response to the declining prices, as a measure to achieve maximum utilisation of the capacity and as a necessary response to the very high increases in volumes sold (+13.7%). It was possible to achieve most of that record production within the current production system. The prospects for the future in terms of sales also look very good, to the point that expansion investments are being considered.

The market conditions for both divisions were encouraging. The volumes sold in the deep-frozen vegetable division rose by more than 10.8%. Growth was even greater in the potato division, with volumes sold rising by 13.8%.

In the context of optimisation of the working capital requirements, the deep-frozen vegetable sector attempted to reduce the current stocks of frozen products. One of the steps taken was to contract less by farmers for the 2010 harvests. That was accompanied by a normal harvest in Western Europe, so the surplus stocks of vegetables in the market were eliminated. In Eastern Europe heavy rains in June caused poor growing conditions. Rather than a surplus, it looks like the bad harvests in Eastern Europe and the continued high demand will result in a shortage of some vegetables in 2011. PinguinLutosa believes that that will lead to an end on the negative pricing pressures and the current price levels will increase during negotiations for the new sales contracts in the summer of 2011.

Demand in the potato division continued to grow strongly. As a result of the harvest problems and the strong increase in demand from Russia, the market conditions have changed here, too. To cope with the very strong increase in the cost of raw materials in our potato division, the company was the first in the sector to decide to increase its prices. PinguinLutosa clearly has a leadership role here. That will lead to a decrease in volumes by a number of clients or markets, but will also allow us to run our production system at a more normal rate of capacity utilisation. We are also changing from the traditional 12 month sales contracts in favour of contracts for shorter periods. That will allow PinguinLutosa and its clients to respond even better to changing circumstances. In the potato division, we want to give the Lutosa brand even more allure. That will make the company less dependent on unilateral price negotiations.

The measures taken were put into the market by our sales organisation in a commercially responsible way.

BUSINESS CYCLE

Purchase and processing of vegetables

As a result of climatological seasonality, the processing season starts in May/June and ends in December. The vegetables processed in 2010 were completely based on contract purchases since spot purchasing is not possible in this market. After all, vegetables do not have the same storage properties that potatoes do. The delivery and processing of the vegetables in the period May/June to December 2010 were based on the negotiations from the December 2009-February 2010 period. Those negotiations led to a decline in the purchase prices for most vegetables.

The situation on the agricultural market has changed completely because of the high prices of grain since July 2010. The negotiations for the deliveries commencing in June 2011 were completed successfully in February 2011, which saw an end to the decline in the prices for raw materials with an increase by 5 to 15%..

Purchase and processing of potatoes

During the first 5 months of 2010, the processing and acquisition of potatoes were based on the negotiations carried out in 2009. The negotiations for the purchased contract volumes that were delivered and processed starting in June 2010 were completed in January 2010. The result was a stable contract price for the purchases of potatoes in 2010.

Those contract purchases constitute approximately 50% of our requirements. The remaining requirements are met through purchases on the free market. The prices of potatoes on the free market showed an increase in three phases starting in May. After a limited increase in May, the heat wave at the end of June led to historically high summer prices, and after a decline in September, the potato price in the free market tripled in December in comparison with the previous year as a result of the wet and cold fall. The negotiations for the harvest of 2011 were completed in February 2011 with an increase of more than 10%.

Potatoes are processed almost throughout the entire year.

Vegetables sales cycle

The sales up to and including September 2010 were based on the sales negotiations in the period July to September 2009. That period was characterised by downward pressures on sales prices.

The sales and sales prices in the period September-December 2010 were negotiated in July-August 2010. That was accompanied by relatively stable to slightly increasing sales prices.

Potato sales cycle

The sales for the January-September 2010 period were based on the sales negotiations in the period September-October 2009. That period was characterised by strong downward pressures on sales prices.

The negotiations for the sales commencing in October 2010 were completed successfully in October 2010. In view of the supply problems, the sharp increases in cost price and the very high demand, we decided to deviate from the normal practice of annual contracts and enter into shorter sales contracts until February 2011. The aim was to use targeted price increases to respond to the rapidly changing market conditions.

Position of the Company – risks and uncertainties

The most important market risks for the Group are the availability of the raw materials, the fluctuations in prices of raw materials, in interest rates and in foreign exchange rates. The market risks are determined by the fluctuations in the sale prices and weather conditions. The sales conditions are determined by changes in supply and demand. Demand is mainly influenced by climatological effects, further internationalization of the market and marketing campaigns. Supply is mainly influenced by the availability of raw materials.

Availability of raw materials

As a result of the weather conditions in 2010, combined with a decline in the sowed acreage, PinguinLutosa expects to encounter some quality and supply problems for vegetables in 2011. The weather conditions for potatoes were substantially worse in 2010 than they had been in 2009. An increase in acreage compensated somewhat, but we still see that there was a supply problem for large potatoes because of the very high demand. The end customer clearly prefers larger fries. Inasmuch as it is only possible to get bigger fries if you use bigger potatoes, the normal supply of smaller potatoes could only compensate to a limited degree, which came at the expense of production efficiencies.

Along with other elements, such as soil fatigue in fields for specific crops, the weather conditions are a compelling reason for the deep-frozen vegetable and potato divisions to reduce their dependency on the harvest in a specific region as much as possible. That is being done by expanding the supply region further and by concluding cooperative agreements with deep-frozen vegetable companies in alternate regions.

Prices of raw materials

The deep-frozen vegetable division works in principle with fixed annual contracts, where the price per vegetable is set for the entire season before the vegetables are sown or planted. Possible shortfalls in the market can be compensated by purchasing deep-frozen products on the free market.

The potato division works partly with annual contracts, in which the prices are set in advance and buys its non-contracted potatoes (approximately 50%) in the free market. The price of the potatoes on the free market can fluctuate significantly as a result of supply fluctuations (primarily influenced by weather conditions and the quality and the storage life of the potatoes) or speculation. Unlike the situation with fresh vegetables, fresh potatoes can be stored, with storage capacity and speculation having an effect on the price.

Despite the high level of attention dedicated to these aspects, both divisions' production depends on temporary weather phenomena, while climatological circumstances can influence supplies and raw materials prices. Harvest yields can fluctuate sharply depending on the weather conditions. This can lead to surpluses or deficits, which in turn leads to pressure on sales prices or a loss of productivity.

Exchange rate risk

The Group is subject to fluctuations in exchange rates which could lead to a profit or loss in currency transactions. The Group realizes a significant portion of its turnover outside the Eurozone, mainly in the United Kingdom. Our British subsidiary Pinguin-Lutosa Foods UK Ltd., where the activities are performed in British pound, represents 24% of total sales of the Group.

To limit the exchange rate risk linked to these sales in British pound, the Group has natural hedging to a large extent through purchases in the United Kingdom and the acquisition of loans in British pound. In certain situations the Group uses term contracts or a number of hedging instruments (options) to cover its income against a further weakening of the British pound.

At the end of 2010 there are no hedging instruments for exchange rate risk outstanding.

Interest-rate risk

Due to the Group's financing structure through short-term loans at variable interest rates (straight loans), the Group wishes to hedge against interest-rate hikes in floating interest rates. A number of IRS's (Interest-Rate Swaps) were concluded for this. The total fair value (marked to market value) is €-0.6 million on 31 December 2010.

The maximum hedging period for these instruments continues to run until October 2013.

Liquidity risk

The liquidity risk with respect to clients is limited by following strict procedures. In addition, credit insurance is also taken out.

Research and Development, Innovation

Innovation and product development

Quality assurance is more important than it has ever been in all PinguinLutosa activities. All employees are involved in the continuous effort to improve product and process quality. Within a naturally growing deep-frozen-products market, driven by increased demand for healthy, natural and balanced nutrition, PinguinLutosa is giving innovation pride of place.

Investments in the best-performing and innovative machines and installations are continuous and on-going. The Group develops products at a quick pace, in step with rapidly changing market trends. In product development the Group is constantly taking account of market trends and consumer needs like globalization, a concern for healthy eating, ease of use, etc. The Group is a leading product innovator in the deep-frozen vegetable and potato sectors and in the ready-made meals market, developing a host of new products and product varieties every year. In 2010, many new products, product varieties, dishes and packaging were developed and marketed.

To achieve this an international group like PinguinLutosa can also cooperate closely with specialists at home and abroad. The Group has its own R&D team to transform all of this into ecologically responsible, hygienic and profitable products. The team which deals specifically with product development comprises 5 permanent employees for the deep-frozen vegetable division and 3 people for the potato division. Development quality and the circulation of information throughout the organization is monitored throughout the process by the Group's own R&D department.

Environment

Sustainability and good corporate governance, in addition to operational efficiency and absolute focus on quality, are important pillars on which the strategy of PinguinLutosa is based. By taking appropriate action within the umbrella framework of the 3 Ps – People, Planet, Profit – the Group is also striving to contribute to the creation of a sustainable environment that will also give chances and opportunities for subsequent generations.

In 2010, a number of CSR projects were launched and expanded. The core areas included the projects for sustainable farming and renewable energy, activities for optimising and reducing water consumption, the use of environmentally friendly packaging materials, and the valorisation of the secondary flows.

Scope of consolidation and period

During the 2010 financial year several name changes have occurred in the consolidation scope for a number of sub-sidiaries: 'Lutosa Italia Srl' has been renamed 'PinguinLutosa Italia Srl'; 'Lutosa Shanghai Ltd' has been renamed 'PinguinLutosa Foods Shanghai Ltd'; and 'Pinguin Foods UK Ltd.' has been renamed 'PinguinLutosa Foods UK Ltd.'.

With no acquisitions made during the last year, the consolidation scope has since remained unchanged. The financial year that ended on 31 December 2010 had 12 months, as did the financial year before.

Commentary on the consolidated financial statements

The consolidated financial statements are prepared in conformity with the International Financial Reporting Stan-dards (IFRS) published by the International Accounting Standard Board (IASB) and the interpretations issued by the IASB's International Financial Reporting Interpretation Committee (IFRIC, previously SIC), which have been approved by the European Commission.

The consolidated financial statements provide a general overview of the Group's activities and the results achieved. They give a true and fair view of the entity's financial position, its financial performance and cash flows, on a going concern basis.

The Board of Directors believes that the application of the valuation rules on a going concern basis is justified. It is basing its view on the positive figures which both divisions can present and on the positive prospects.

The Board of Directors is also convinced that the equity is sufficient, and that the planned activity increases and acquisitions will allow profit to continue to evolve positively.

Sales

Consolidated sales increased in 2010 by 10.7% to €483.6 million.

The potato division was responsible for €238.4 million of the sales during the 2010 financial year. This represented 49.3% of total sales. Sales in the potato division increased by 12.2% compared to the 2009 financial year. This increase can be mainly attributed to the higher sales volume (+13.8%) during 2010.

Sales for the deep-frozen vegetable division amounted to €245.2 million during the 2010 financial year, representing 50.7% of total sales. The increase in sales in this division compared to last year is primarily due to the organic growth of PinguinLutosa in 2010. Volumes sold in the deep-frozen vegetable division actually rose by 10.8% during the past year.

The Group sells its products worldwide in more than 105 countries. The share of the British market is 15.3% in the potato division, rising to 44.2% in the deep-frozen vegetable division.

Result

The operating result (EBIT) from continuing operations amounts to €7.3 million per 31 December 2010, compared to €15.0 million per 31 December 2009. The EBIT-margin (compared to operating income) now amounts to 1.5%, com-pared to 3.4% in December 2009.

Although the demand for both deep-frozen potatoes and deepfrozen vegetables were good, it was expected that 2010 would be a difficult year. And it was. It was particularly difficult for the potato division because of raw materials prices for potatoes that were three times higher than the previous year. After closing the sales contracts in the fall of 2009 (which would run for a year until the end of summer 2010), it was clear that the sales prices were too low and that the margins would be too small until the end of September 2010. The margins would have to recover in the 4th quarter of 2010.

To achieve that objective, the new sales contracts were negotiated with due care and foresight and a choice was made to enter into shorter-term contracts with a duration to the end of January 2011. In the meantime, the raw materials prices were rising faster than expected.

That led to the EBITDA for the potato segment reaching €10.6 million.

As expected, the first half of the year in the deep-frozen vegetable division was poorer because of low sales contract prices on the one hand and the high inventory prices of 2009 on the other. The prices of raw materials declined but due to the scheduled production decline, that advantage and better margins could not be maintained.

PinguinLutosa was, however, successful in limiting the margin losses through selection and product-portfolio optimisation. The EBITDA for the deep-frozen vegetable division was €16.5 million.

The EBIT figures are influenced by several one-off events in the United Kingdom and Pinguin Aquitaine SAS, which had associated costs of €1.9 million.

In PinguinLutosa Foods UK Ltd. additional costs of €0.2 million have been recorded, related to a claim for cleaning and repair costs when the rented site in Easton (United Kingdom) was vacated. In addition, in the United Kingdom costs of €0.4 million

have also been recorded regarding the vacation of part of the site at King's Lynn. The result of the Belgian deep-frozen vegetable division includes acquisition costs of €0.4 million, related to D'aucy Frozen Foods (CECAB-transaction). In Pinguin Aquitaine SAS an additional provision of €0.3 million has been recorded, related to pending local disputes regarding cleaning and repair works on the property and water-purification installation.

In addition, a number of non-recurring income items in Belgium and the United Kingdom were included in the operating result for the year to 31 December 2010, totaling €2.8 million. The result of the Belgian deep-frozen vegetable division includes a signing fee of €0.2 million, related to a green energy project and in the United Kingdom a compensation of €2.6 million has been received for the vacation of part of the site at King's Lynn.

A net one-off cost of €1.1 million was included in the operating results for the 2009 financial year, primarily related to the United Kingdom and Pinguin Aquitaine SAS, while this year, as referred to previously, a net one-time income of €0.9 million has been included.

The REBIT therefore amounted to €6.4 million on 31 December 2010 compared to €16.1 million at the end of De-cember 2009. As a percentage of the operating revenues, the REBIT amounted to 1.3% on 31 December 2010, compared to 3.6% in December 2009.

The financial result improved significantly and amounted to €-4.7 million on 31 December 2010 compared to €-8.0 million on 31 December 2009. That is an improvement of €3.3 million. That evolution can be explained by several factors. In 2010, net foreign exchange gains of €1.5 million have been recorded, compared to €2.8 million per 31 December 2009. This negative movement has been compensated by the positive change of €1.1 million in the value of the financial instruments related to hedging against the interest rate risk, whereas in 2009 a negative change of €-3.2 million in the value of financial instruments was recorded.

The 'marked to market' (MTM) valuation of the interest-hedging instruments is also part of the other financial revenues and costs and had a negative value of €-0.6 million on 31 December 2010.

In spite of the negative result for the first half of the year, which was caused by low sales prices and pressure on the margins, the measures taken during the past financial year, together with the efforts of our people, have all positively contributed to the pretax result, which now stands at €2.6 million positive compared with €7.0 million positive for the period to 31 December 2009.

The taxes expressed in the income statement arise from the results of the financial year. Differences in the results reported under local and IFRS valuation rules give rise to deferred taxes.

The Group shows a net profit after taxes of €2.8 million in 2010 compared to €10.3 million in 2009. Earnings per share (share of the Group) amount to €0.26 in 2010 compared to €0.93 in 2009.

Statement of financial position

Intangible fixed assets consist mainly of the brand name and the customer relationships of the acquired potato division ('Lutosa Group'), as well as software licences. The fall is explained by depreciation charges during the financial year, which is only partly offset by the €0.7 million of investments in software.

The expressed goodwill includes that due to the acquisition of Salvesen of €1.2 million and the €51.6 million in goodwill due to the acquisition of the potato division ('Lutosa Group').

Tangible fixed assets decreased slightly from €134.7 million at 31 December 2009 to €131.1 million at 31 December 2010, a decrease of €3.5 million. The evolution of the British pound means that the Group's UK assets are now recorded at an exchange rate of 1.1675 compared with 1.1113 a year ago.

Based on the value of the tangible fixed assets of PinguinLutosa Foods UK Ltd., the impact of this change in the exchange rate of the British pound amounts to €0.6 million. Depreciation charges at the various entities, acquisitions of the present year and the exchange rate developments give the net fall of €3.5 million compared with 31 December 2009.

The working capital and managing the working capital financing has already been one of the major points of attention of the Group and the sector for some time now.

Many companies in our sector are having difficulty in financing the working capital requirements. As a result, they have to sell their inventories more quickly. The inventory financing problems in particular have led to lower prices and pressure on margins during the negotiations for the new sales contracts for 2010-2011.

Over the past year, the inventories declined by €9.5 million. Although the strong increase in sales did lead to an increase in trade receivables by €16.0 million, that was completely offset by the increase in trade debts. That led to a decrease in the working capital requirement (excluding cash) by €10.6 million.

At year-end, the cash position was €54.9 million, up from €37.9 million a year earlier.

Also in 2011, additional efforts will be made to further optimize working capital and the related financing needs. That will be done in the context of the expected sales forecasts and should make it possible to respond flexibly to certain market conditions.

Equity is positively influenced by the private capital increase and the €2.8 million result for the financial year and amounts to €138.7 million at 31 December 2010. On 28 October 2010, a private capital increase, within the framework of authorized capital of €10 million was approved and established by the Board of Directors.

In addition, the strengthening of the British pound positively impacted consolidated equity through translation differences relating to the shareholdings in PinguinLutosa Foods UK Ltd. and the Salvesen goodwill. The overall impact of the translation differences (including translation differences on sales offices) amounts to €+0.9 million at 31 December 2010. Globally, equity (including non-controlling interests) has risen by €13.6 million to €138.7 million at 31 December 2010 compared with €125.1 million at 31 December 2009.

Shareholders' equity at 31 December 2010 amounts to 33.0% of the statement of financial position total.

The net financial debt has fallen to €66.8 million at 31 December 2010 compared to €92.2 million at 31 December 2009, down €25.4 million.

Cash flow

The REBITDA amounted to €25.9 million in the past year. That is a decrease of €10.2 million in comparison with the previous financial year 2009, when the REBITDA was €36.1 million. The nonrecurring elements had no impact on the operating cash flow in 2010. The recurrent EBITDA therefore amounted to 5.5% of the operating revenues. At 31 December 2009, that figure was 8.1%.

Dividends

The Board of Directors has proposed to the Annual General Meeting of Shareholders that no dividend will be paid. The results have indeed improved considerably, but any dividends in the longer term will depend on the net unconsolidated results of PinguinLutosa NV, the company's financial situation, its legal reserves and other factors that the Board of Directors or the Annual Meeting consider important.

Investments and disinvestments

The investments in tangible fixed assets amount to €14.5 million per 31 December 2010 and consist of investments in 'land and buildings' (€0.5 million), in 'plant, machinery and equipment' (€13.2 million), in 'furniture and vehicles' (€0.8 million).

The investments in 'plant, machinery and equipment' relate primarily to the deep-frozen vegetable division in Belgium (€4.0 million), PinguinLutosa Foods UK Ltd. (€5.1 million) and the potato division (€4.0 million).

The main 'plant, machinery and equipment' investments at 31 December 2010 in the deep-frozen vegetable division relate to:

• Investments in an automated transportation system;
• Optimization investments in logistics and energy;
• Optimization investments in production lines;
• Additional packing lines and wooden boxes;
• Automation of packing infeed lines in the United Kingdom;
• Optimization investments in the packing hall and the loading bays in the United Kingdom.

In the 2010 financial year, the potato division invested in the Leuze-en-Hainaut site, primarily in a specialty line, a steam peeler, optical sorters, optimization investments in the water purification and the steam installation. In addition, the potato division invested at the site at Sint-Eloois-Vijve, primarily in an optical sorting machine, a weighing installation and compressors.

Investments in intangible fixed assets amount to €0.7 million at 31 December 2010 and relate mainly to software.

Bank covenants

At the beginning of January 2008, PinguinLutosa concluded an agreement with a consortium of Belgian and international banks to refinance the existing credit with an additional credit facility for working capital and investments for a period of 5 years. The total amount of the agreement was €140 million. In the course of 2009, that agreement was renegotiated at PinguinLutosa's request and several covenants were amended in order to better match the nature of the company and our activities. As of 31 December 2010, PinguinLutosa was in compliance with all covenants.

Hedging and use of financial instruments

The Group uses derivative financial instruments to cover risks related to unfavourable fluctuations in foreign exchange rates and interest rates. No derivates were used for commercial purposes. Derivative instruments are initially valued at cost price and only afterwards at their fair value. The ongoing contracts do not satisfy the conditions of hedge accounting (see IAS 39). The changes in fair value are included in the statement of comprehensive income.

At year-end 2010, only interest derivates, and no currency derivatives, were open. The maximum hedging period of those instruments runs until October 2013.

Issuance of financial instruments

The Group has not issued any securities with rights and obligations that differ from those attached to the other shares. There are no employee share plans. All shares carry the same rights.

There are no legal or statutory restrictions on the transfer of shares.

The appointment and replacement procedure for members of the governing body are described in the Corporate Governance Code, which is published on the Group website.

In accordance with the articles of association, the Board of Directors has been authorised to issue shares within the authorised capital which has been raised to €60 million. The Board of Directors is authorized to purchase shares.

The Group has not concluded any special agreements with its directors or employees which stipulate payments when the directors resign or have to leave without a valid reason or the employees' employment is terminated, due to a public takeover bid.

Employees

On 31 December 2010 the Group had 1,696 employees. This is a decrease of 25 full-time equivalents compared to the previous financial year.

The table below gives the average personnel count for the year in full-time equivalents. The number of employees can, however, vary sharply from one day to the other depending on the season and supply.

The increase in temporary workforce is attributable primarily to the deep-frozen vegetable division in the United Kingdom and the potato segment.

Average personnel in full-time equivalents	31/12/2010	31/12/2009
PinguinLutosa NV	245	242
Pinguin Langemark NV	89	113
PinguinLutosa Foods UK Ltd.	259	293
Pinguin Aquitaine SAS	39	42
PinguinLutosa Deutschland Gmbh	6	6
MAC Sarl	0	1
Lutosa Group (production sites)	628	633
Lutosa Group sales offices	25	28
Seasonal and temporary	405	363
Total	1,696	1,721

Important events after balance sheet date

On 14 March 2011, PinguinLutosa announced that it has signed a 'principle' agreement with GIMV regarding the full acquisition of Scana Noliko.

PinguinLutosa is paying €115 million for all the shares in the companies (including the real estate company). The Board of Directors of PinguinLutosa will propose to the general meeting of shareholders to finance this transaction as follows:

• Partly by a capital increase of €44 million;
• Partly by a subordinated loan with warrants for an amount of €36 million;
• In expectation of the realisation of the real estate, bridge financing is foreseen for €30 million from Food Invest International NV;
• The balance will then be realised from part of the trade receivables.

The Board of Directors has also decided to appoint M. Hein Deprez as managing director of PinguinLutosa NV as from 14 March 2011 onwards.

CORPORATE GOVERNANCE

For the required legal information with respect to Corporate Governance in accordance with article 119, §2, 7° of the Company Code, please refer to paragraph 'internal control and risk management' of the 'Corporate Governance' section of Pinguin-Lutosa's annual report.

financial report 2010

1.	General information 73
2.	Financial reporting principles 73
2.1.	Declaration of conformity 73
	2.2. Newly published standards and interpretations
	which are not yet applicable 73
	2.3. Valuation rules 75
	(a) Consolidation principles 75
	(b) Foreign currencies 77
	(c) S egmented information 78
	(d) Non-current assets held for sale
	and discontinued operations 78
	(e) Intangible fixed assets 79
	(f) Goodwill 80
	(g) Tangible fixed assets 80
	(h) Leasing 81
	(i) Impairment of tangible and intangible fixed assets 81
	(j) Inventories 82
	(k) Financial assets 82
	(l) Trade and other receivables 83
	(m) Cash and cash equivalents 83
	(n) Equity instruments and interest-bearing liabilities:
	distinction 83
	(o) Equity instruments 83
	(p) Provisions 84
	(q) Employee benefits 84
	(r) Other financial liabilities: bank loans 84
	(s) Other financial liabilities: subordinated loans 84
	(t) Other financial liabilities: trade and other payables 84
	(u) Financial assets and liabilities: derivatives 85
	(v) Income taxes 85
	(w) Revenue 86

	(z) Events after balance sheet date 87
2.4.	Changes to the consolidation scope 87
	2.4.1. Changes to the consolidation scope: 2010 87
	2.4.2. Changes to the consolidation scope: 2009 87
3.	Use of estimates 88
4.	Segment reporting 88
5.	Notes to the consolidated income statement 94
5.1. S	ales 94
5.2.	Other operating income 94
5.3.	Operating charges 95
5.4.	Operating result (EBIT) 96
5.5.	Financial income and expenses 98
5.6.	Income taxes 99
5.7.	Earnings per share 100
6.	Notes to the consolidated statement of financial
	position 101
6.1.	Intangible fixed assets 101
6.2.	Goodwill 103
6.3.	Tangible fixed assets 105
6.4.	Other non-current financial assets 108
6.5.	Inventories 108
6.6. L	ong-term receivables 109
6.7.	Fixed assets held for sale 109
6.8.	Deferred tax assets and liabilities 110
6.9.	Trade and other receivables111
	6.10. Cash and cash equivalents 113
6.11.	Issued capital 114
	6.12. Own shares 115
6.14. S	6.13. Dividends 115 tock option and warrant plans 115

	6.15. Non-controlling interests 115
			6.16. Provisions 116
			6.17. Pension obligations 116
			6.18. Interest-bearing liabilities 117
			6.19. Trade and other payables (short-term) 119
			6.20. Risk management policy 120
	1.		Market risk 121
		1.a.1.	Foreign exchange risk 121
			1.a.2. Foreign exchange sensitivity 123
		1.b.1.	Interest-rate risk 124
			1.b.2. Interest-rate risk: interest-rate sensitivity 124
			1.b.3. Interest-rate risk:
			maturity of financial instruments 125
		1.c.	Foreign exchange risk and interest-rate risk:
			financial instruments (derivatives) 127
		1.d.	Other market risks 129
	2.		Credit risk 129
			2.a.1. Exposure to credit risk 130
			2.a.2. Impairment losses 131
	3. S		hare price risk 131
	4. L		iquidity risk 131
	5.		Financial instruments by class and category 133
	6.		Capital structure 136
7.			Other elements 136
7.1. S			ubsidiaries 136
7.2.			Pending disputes 138
7.3.			Commitments 139
7.4.			Related parties 141
7.5.			Events after the balance sheet date 143
7.6.			Non-audit missions undertaken by the statutory
			auditor + related parties 143

CO NS O LIDATED FI NAN C IAL STATEM ENTS

The consolidated financial statements were approved for publication by the Board of Directors on 17 March 2011.

CONSOLIDATED INCOME STATEMENT(1)

Consolidated income statement (in thousands of €)	Note (*)	31/12/2010	31/12/2009
Sales	5.1.	483,564	436,838
Increase/decrease (-) in inventories		-15,214	6,133
Other operating income	5.2.	6,557	3,826
Raw materials, consumables and goods for resale	5.3.	-264,797	-236,440
Services and other goods	5.3.	-121,811	-113,276
Personnel costs	5.3.	-58,253	-57,804
Depreciation and amortization	5.3.	-18,912	-19,432
Impairment losses on assets	5.3.	-382
Impairments, write-offs	5.3.	-554	-578
Provisions	5.3.	65	-1,050
Other operating charges	5.3.	-2,940	-3,177
Operating result (EBIT)	5.4.	7,323	15,041
Non-recurring income	5.4.	2,774
Non-recurring expenses	5.4.	-1,887	-1,054
Operating result before non-recurrings (REBIT)	5.4.	6,436	16,095
Financial income	5.5.	2,708	3,437
Financial expenses	5.5.	-7,388	-11,452
Operating profit after net finance costs		2,643	7,026
Taxes	5.6.	112	3,304
Profit (loss) of the period		2,755	10,330
Attributable to:
- The shareholders of PinguinLutosa (the 'Group')		2,813	10,012
- Non-controlling interests		-58	318
Earnings per share (in € per share)	Note (*)	31/12/2010	31/12/2009
Basic	5.7.	0.26	0.93
Diluted		0.26	0.93

(1) In accordance with the IFRS standards, in 2010 the transport costs charged on to customers have been posted under the heading 'sales' and the prior period figures have been adjusted accordingly (we refer to the heading "2.3. Valuation rules"). (*) The attached notes form an integral part of this income statement.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Consolidated statement of comprehensive income (in thousands of €)	31/12/2010	31/12/2009
Profit (loss) of the period	2,755	10,330
Other comprehensive income of the period
Foreign currency translation differences for foreign operations	878	1,158
Other
Income tax relating to components of other comprehensive income
Other comprehensive income (net of tax)	878	1,158
Total comprehensive income of the period	3,633	11,488
Attributable to:
- The shareholders of PinguinLutosa (the 'Group')	3,691	11,170
- Non-controlling interests	-58	318

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Assets (in thousands of €)	Note (*)	31/12/2010	31/12/2009
Non-current assets		188,301	192,034
Intangible fixed assets	6.1.	4,206	4,483
Goodwill	6.2.	52,832	52,773
Tangible fixed assets	6.3.	131,120	134,660
- Land and buildings	6.3.	28,789	30,014
- Plant, machinery and equipment	6.3.	98,572	100,872
- Furniture and vehicles	6.3.	2,706	2,663
- Other	6.3.	1,053	1,111
- Assets under construction and advance payments	6.3.
Financial fixed assets	6.4.
- Other non-current financial assets	6.4.
Deferred tax assets	6.8.
Long-term receivables (> 1 year)	6.6.	143	118
- Other receivables	6.6.	143	118
Current assets		231,936	208,447
Assets held for sale	6.7.
Inventories	6.5.	112,566	122,152
- Raw materials and consumables	6.5.	15,648	11,886
- Work in progress and finished goods	6.5.	96,918	110,266
Amounts receivable	6.9.	64,380	48,307
- Trade receivables	6.9.	51,182	38,643
- Other receivables	6.9.	13,198	9,664
Other financial assets	6.20.
- Derivatives	6.20.
- Short-term deposits	6.20.
Cash and cash equivalents	6.10.	54,990	37,988
Total assets		420,237	400,481

(*) The attached notes form an integral part of this statement of financial position.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)

Equity and liabilities (in thousands of €)	Note (*)	31/12/2010	31/12/2009
Equity		138,714	125,148
Share capital	6.11.	111,013	101,028
- Issued capital	6.11.	111,013	101,028
Share premium		11,376	11,376
Consolidated reserves		17,759	14,997
Cumulative translation adjustments		-3,394	-4,272
Non-controlling interests	6.15.	1,960	2,019
Non-current liabilities		84,743	99,632
Provisions for pensions and similar rights	6.16./6.17.	26	57
Other provisions	6.16.	1,257	1,252
Financial debts at credit institutions	6.18.	56,031	68,917
- Finance leases	6.18.	476	1,076
- Bank loans	6.18.	53,055	65,105
- Bonds	6.18.
- Other financial debts	6.18.	2,500	2,736
Other amounts payable	6.18.
Deferred tax liabilities	6.8.	27,429	29,406
Current liabilities		196,780	175,701
Financial debts at credit institutions	6.18.	65,755	61,266
- Finance leases	6.18.	629	1,186
- Bank loans: debts > 1 year payable within current year	6.18.	12,781	10,196
- Bank loans	6.18.	51,516	48,009
- Derivatives	6.20.	594	1,648
- Other financial debts	6.18.	235	227
Trade payables	6.19.	116,679	99,429
Advances received on contracts	6.19.	61	169
Tax payable	6.19.	6,763	6,446
Remuneration and social security	6.19.	6,876	7,664
Other amounts payable	6.19.	646	727
Total equity and liabilities		420,237	400,481

(*) The attached notes form an integral part of this statement of financial position.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

The table below summarizes the changes in equity in 2010 and 2009:

Consolidated statement of changes in equity

(in thousands of €)

	Capital	Share premium	Treasury shares
Balance as at 1 January 2010	101,028	11,376	0
Profit (loss) of the period
Other comprehensive income
Total comprehensive income	0	0	0
Dividend payments
Capital increase	9,985
Capital decrease from incorporating reserves
Changes in consolidation scope
Others
Balance as at 31 December 2010	111,013	11,376	0

Consolidated statement of changes in equity

(in thousands of €)

Balance as at 1 January 2009	101,028	11,376	0
Profit (loss) of the period
Other comprehensive income
Total comprehensive income	0	0	0
Dividend payments
Capital increase
Capital decrease from incorporating reserves
Changes in consolidation scope
Others
Balance as at 31 December 2009	101,028	11,376	0

Total equity	Non-controlling interests	Attributable to the shareholders of PinguinLutosa
		Total share of the Group	Retained earnings	Other reserves	Translation differences
125,148	2,019	123,129	7,537	7,460	-4,272
2,755	-58	2,813	2,813
878		878			878
3,633	-58	3,691	2,813	0	878
9,985		9,985
-52	-1	-51	-51
138,714	1,960	136,754	10,299	7,460	-3,394

113,556	1,696	111,860	-2,574	7,460	-5,430
10,330	318	10,012	10,012
1,158		1,158			1,158
11,488	318	11,170	10,012	0	1,158
104	5	99	99
125,148	2,019	123,129	7,537	7,460	-4,272

CONSOLIDATED STATEMENT OF CASH FLOWS

Consolidated statement of cash flows (in thousands of €)	31/12/2010	31/12/2009
CASH AND CASH EQUIVALENTS, OPENING BALANCE	37,988	20,409
Cash flow from operating activities (a)	34,106	42,040
Operating profit (EBIT)	7,323	15,041
Income taxes	-1,915	-7,419
Adjustments for non-cash items	20,002	21,203
Depreciation of tangible fixed assets	18,091	18,201
Amortization of intangible fixed assets	1,001	1,369
Increase/decrease (-) in amounts written off	936	578
Increase/decrease (-) in provisions	-26	1,055
Increase/decrease (-) in working capital	8,696	13,215
Increase (-)/decrease in inventories	9,194	-7,864
Increase (-)/decrease in trade and other receivables	-16,073	14,334
Increase/decrease (-) in trade and other payables	14,055	3,955
Effect of exchange rate on working capital	1,520	2,790
Cash flow from investing activities (b)	-12,290	-12,198
Acquisitions (-)	-12,714	-12,395
Acquisition of intangible fixed assets	-523	-150
Acquisition of tangible fixed assets	-12,191	-12,245
Disposals	424	197
Disposal of tangible fixed assets	424	197
Cash flow from financing activities (c)	-4,633	-12,170
Capital increase	9,985
Increase long- and short-term funding	7,226	8,475
Decrease (-) long- and short-term funding	-14,571	-13,014
Net interests paid	-5,750	-6,100
Other financial charges	-1,523	-1,531
Net increase in cash and cash equivalents (a+b+c)	17,183	17,672
Effect of exchange rate fluctuations	-182	-93
CASH AND CASH EQUIVALENTS, CLOSING BALANCE	54,989	37,988

notes to th e con s o lidated financia l statement s

1. GENERAL INFORMATION

PinguinLutosa NV is a company established in Belgium. Its legal address is Romenstraat 3, 8840 Westrozebeke. The consolidated financial statements of PinguinLutosa NV for the financial year (12 months) ending on 31 December 2010 cover PinguinLutosa NV and its subsidiaries ('the Group') and PinguinLutosa NV's interests in associated companies and entities over which joint control is exercised.

The Group is active predominantly in two segments, deep-frozen vegetables & potatoes. Within the deep-frozen vegetable segment, the production of deep-frozen culinary vegetable preparations and dishes ('convenience') forms an extension of the basic activity.

The consolidated financial statements provide a general overview of the Group's activities and the results achieved. They give a true and fair view of the entity's financial position, financial performance and cash flows on a going concern basis.

On 17 March 2011 the consolidated financial statements were approved for publication by the Board of Directors.

2. FINANCIAL REPORTING PRINCIPLES

2.1 DECLARATION OF CONFORMITY

The present consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) published by the International Accounting Standards Board (IASB) and the interpretations issued by the International Financial Reporting Interpretation Committee (IFRIC), as approved by the European Union.

2.2 NEWLY PUBLISHED STANDARDS AND INTER-PRETATIONS WHICH ARE NOT YET APPLICABLE

The impact on the consolidated financial statements of the Group of new Standards and Interpretations that came into application as from 1st of January 2010 onwards is presented below:

• IAS 27 (Revised in 2008) "Consolidated and Separate Financial Statements" (effective from 1 January 2010); The revised standard requires the effects of all share transactions with non-controlling interests to be recorded in equity if there is no change in control. Consequently, such transactions will not result in goodwill or gains and losses recognized in profit or loss. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is remeasured to fair value, and a gain or loss is recognized in profit or loss (see also heading "2.3 valuation rules a)").
• IFRS 3 (Revised in 2008) "Business Combinations" (effective from 1 January 2010);

The revised standard includes some significant changes. The purchase consideration to acquire a business, including contingent payments, should be recorded at fair value at the acquisition date, while subsequent adjustments to the contingent payments resulting from events after the acquisition date should be recognized in profit or loss. The so-called full goodwill option, which can be elected on a case by case basis, allows the acquirer to measure the noncontrolling interest in the acquiree either at fair value or at its proportionate share of the acquiree's net assets. All acquisition-related costs, such as consulting fees, should be expensed. As this may have an influence on the treatment of future business combinations, it is not possible at this time to estimate its impact.

• Improvements to IFRS (2009)

These improvements comprise 15 adjustments to 12 different Standards and Interpretations, most of which clarify the accounting basis and have resulted in several changes in the details of the Group's valuation rules. Applying these "improvements to IFRS (2009)" has no significant impact on the Group's reported results or financial position.

The following (other) new Standards and Interpretations that came into application as from 1st of January 2010 onwards have no or limited impact on the consolidated financial statements of the Group:

• Amendment to IAS 27 "Consolidated and Separate Financial Statements" (applicable for annual periods beginning on or after 1 July 2009). This Standard amends IAS 27 "Consolidated and Separate Financial Statements" (revised 2003);
• IFRS 3 "Business Combinations" (applicable to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009). This Standard replaces IFRS 3 "Business Combinations" as issued in 2004;
• Improvements to IFRS (2008-2009) (normally applicable for accounting years beginning on or after 1 January 2010);
• Amendments to IFRS 1 "First Time Adoption of International Financial Reporting Standards – Additional exemptions" (applicable for annual periods beginning on or after 1 January 2010);
• Amendment to IFRS 2 "Share-based Payment" (applicable for annual periods beginning on or after 1 January 2010);
• Amendments to IAS 39 "Financial Instruments: Recognition and Measurement – Eligible Hedged Items" (applicable for annual periods beginning on or after 1 July 2009);
• IFRIC 17 "Distributions of Non-cash Assets to Owners" (applicable for accounting years beginning on or after 1 November 2009).

The Group did not apply prospectively to the 2010 financial year the following new Standards and Interpretations, which had been issued but had not yet come into effect at the date of approval of this annual report:

• IFRS 9 "Financial Instruments" (applicable for annual periods beginning on or after 1 January 2013);
• Amendment to IAS 24 "Related Party Disclosures" (applicable for annual periods beginning on or after 1 January 2011). This Standard supersedes IAS 24 "Related Party Disclosures" as issued in 2003;
• Amendments to IAS 32 "Financial Instruments: Presentation – Classification of Rights Issues" (applicable for annual periods beginning on or after 1 February 2010);
• IFRIC 19 "Extinguishing Financial Liabilities with Equity Instruments" (applicable for annual periods beginning on or after 1 July 2010);
• Amendment to IFRIC 14/IAS 19 "The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction – Prepayments of a Minimum Funding Requirement" (applicable for annual periods beginning on or after 1 January 2011);
• Improvements to IFRS (2009-2010) (normally applicable for annual periods beginning on or after 1 January 2011);
• Amendment to IFRS 1 "First Time Adoption of International Financial Reporting Standards – IFRS 7 exemptions" (applicable for annual periods beginning on or after 1 July 2010);
• Amendment to IFRS 7 "Disclosures Transfers of Financial Assets" (applicable for annual periods beginning on or after 1 July 2011).

At the present time the Group does not expect that the firsttime application of these standards and interpretations will significantly affect the financial statements of the Group during the period of first-time application, with the exception of:

• IFRS 9 "Financial Instruments" (applicable for annual periods beginning on or after 1 January 2013), the application of which can significantly affect the classification and measurement of financial assets;
• IAS 24 "Related Party Disclosures", the application of which can significantly affect the related party disclosures in future accounting periods because some counterparties that did not previously meet the definition of a related party may come within the scope of the revised Standard.

2.3 VALUATION RULES

In 2010 no major changes took place in the valuation rules compared with the previous reporting period apart from the application of the revised Standards IFRS 3 "Business Combinations" and IAS 27 "Consolidated and Separate Financial Statements" and the changed presentation of the transport costs charged on to customers. In accordance with the IFRS standards, the transport costs charged on to customers have no longer been posted under the heading 'other operating income' in 2010 (impact: €7.9 million) and 2009 (impact: €5.5 million), but have been included under the heading 'sales'.

(a) Consolidation principles

The consolidated annual financial statements consolidate the financial data of PinguinLutosa NV and the enterprises over which it has control, i.e. its subsidiaries, after eliminating all material transactions within the Group.

Subsidiaries

Subsidiaries are those companies over which the parent company has control, i.e. the power to direct the financial and operating policy of a company in order to benefit from its activities. In assessing whether control exists, account is taken of potential voting rights that are exercisable or convertible at that time. Subsidiaries are those companies in which PinguinLutosa NV has, directly or indirectly, over 50% of the voting rights or in which PinguinLutosa NV can exercise, directly or indirectly, a decisive influence on policy.

Subsidiaries are fully consolidated. The financial statements of subsidiaries are included in the consolidated financial statements from the date that the parent company gains control until the date that it loses control.

The financial statements of subsidiaries and joint ventures are drawn up for the same financial year as that of the parent company, based on uniform financial reporting principles for comparable transactions and other occurrences in similar circumstances. Equity and net result attributable to minority shareholders are shown separately in the statement of financial position and income statement, respectively.

Non-controlling interests

Non-controlling interests represent the shares of minority shareholders in the equity of subsidiaries which are not fully owned by the Group.

Non-controlling interests in the net assets of consolidated subsidiaries are identified and presented in a separate line under Group capital. The book value of non-controlling interests in net assets consists of:

• On the one hand, the amount of the non-controlling interests at the time of the original business combination, measured in accordance with IFRS 3 "Business Combinations (2008)". The revised Standard allows a choice of measurement: initial valuation at fair value or initial valuation at the minority shareholders' proportion of the fair values of net assets recognized on acquisition of a subsidiary (business combination) (see below in these notes under the heading 'business combinations'). The choice ('full goodwill'-option) can be made on a transaction-by-transaction basis.
• On the other hand, non-controlling interests' share in changes in equity since the acquisition date.

The losses in a consolidated subsidiary attributable to the noncontrolling interests may be greater than the non-controlling interest in the equity of a subsidiary. Any such excess, and any further losses applicable to the non-controlling interest are deducted from the non-controlling interests which makes it possible to have a negative amount under the revised Standard.

Business combinations

As from 1 January 2010 onwards, business combinations and acquisitions are accounted for using the purchase method in accordance with the revised Standard IFRS 3 "Business combinations (2008)".

For each acquisition the cost, in order to obtain control over an entity, is measured as the total fair value, at the date of exchange, of relinquished assets, issued 'equity instruments' and liabilities entered into or taken over. The consideration transferred in a business combination includes the fair value, at the date of exchange, of the assets and liabilities resulting from a contingent consideration arrangement. The costs made by the acquirer that are directly attributable to the business combination are recognised as an expense in profit and loss as incurred, except for the costs of the issue of bonds or shares and similar instruments that are handled in accordance with IAS 32 and IAS 39.

Identifiable acquired assets, liabilities taken over and contingent liabilities which are part of a business combination are initially measured at their fair value at acquisition date, with the exception of fixed assets held for sale in accordance with IFRS 5 "Noncurrent Assets Held for Sale and Discontinued Operations", which are measured at fair value minus the cost of selling them, regardless of the existence of any non-controlling interest.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period. Measurement period adjustments are adjustments that arise from additional information obtained during the 'measurement period' (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date. Subsequent changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments are recognized in accordance with the relevant IFRS Standards (in equity or in profit or loss).

The 'full goodwill' option, which can be elected on a case by case basis, allows the acquirer to measure the non-controlling interest in the acquiree either at fair value or at its proportionate share of the acquiree's net assets.

In accordance with IFRS 3, the purchase of a non-controlling interest after control is obtained cannot be accounted for as a business combination but an appropriate accounting treatment is not foreseen in the current standard. As a consequence, the Group has decided to apply the accounting principles set out in IAS 27 (revised January 2008), "Consolidated and Separate Financial Statements", in this respect. Consequently, a purchase of a non-controlling interest after control is obtained is accounted for as a transaction between equity holders in that capacity. As such, the purchase of a non-controlling interest cannot give rise to goodwill or to a gain or loss in the income statement. Any difference between the fair value of the acquired non-controlling interest and the purchase consideration is recognized directly in equity. The adjustments to non-controlling interests are based on a proportionate amount of the net assets of the subsidiary.

Upon the loss of control, the Group derecognises the assets and liabilities of the subsidiary, any non-controlling interests and the other components of equity related to the subsidiary. When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. The amounts previously recognised in other comprehensive income and accumulated in equity are accounted for as if the Company had directly disposed of the relevant assets (i.e. reclassified to profit or loss or transferred directly to retained earnings as specified by applicable IFRSs). If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently it is accounted for as an equity-accounted investee or as an available-for-sale financial asset depending on the level of influence retained.

Investments in joint ventures and associated companies

Joint ventures are enterprises in which the Group enters into a contractual agreement with one or more parties to undertake, directly or indirectly, an economic activity over which they have joint control, i.e. that the strategic, financial and operating decisions on this activity require the unanimous agreement of the parties sharing control.

Associated companies are companies in which the Group exercises, directly or indirectly, significant influence, but has no control over the entity's financial and operating policy and which are neither subsidiaries nor joint ventures. This is presumed if the Group holds at least 20% or more of the companies' voting rights.

The consolidated financial statements include the Group's share of the results of joint ventures and associates accounted for using the equity method from the date when joint control or significant influence commences until the date when joint control or significant influence ceases, except where the investment is classified as held for sale and then needs to be accounted for in accordance with IFRS 5 "Non-current Assets Held for Sale and Discontinued Operations".

The financial information included for these companies is prepared using the accounting policies of the Group. Under the equity method investments in associated companies and joint ventures are initially recognized at cost and then adjusted to reflect changes in the investor's share in the net assets of the company subsequent to acquisition, less any impairment in the value of individual investments. Losses of an associated company that exceed the Group's interests in the associated company (also including all long-term interests which are in essence part of the Group's investments in this associated company) are not recorded, except to the extent that the Group has incurred obligations in respect of that associate.

The carrying amounts of investments in joint ventures and associates are reassessed if there are indications that the asset has been impaired or that impairment losses recognized in prior years have ceased to apply.

Any excess of the cost of acquisition over the Group's share of the net fair value of the identifiable assets, liabilities and contingent liabilities of an associate recognised at the date of acquisition is recognised as goodwill, which is included within the carrying amount of the investment. The investments in joint ventures and associates in the balance sheet include the carrying amount of any related goodwill, which is assessed for possible impairment as part of this investment.

Any excess of the Group's share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss ('badwill').

At 31 December 2009 and 31 December 2010 the Group had no interests in joint ventures and there were no associated companies.

Consolidation eliminations

All intra-group balances and transactions with subsidiaries, including unrealized gains on intra-group transactions, are eliminated when preparing the consolidated financial statements. Unrealized losses are also eliminated unless the impairment is permanent.

Unrealized gains on transactions with associated companies and joint ventures are eliminated in the amount of the Group's interest in the entity. The same elimination rules apply to unrealized losses as for unrealized gains, with the difference that they are eliminated only where there is no indication for recording an impairment.

Finally, we would refer the reader to our consolidation scope, as mentioned in note "7.1. Subsidiaries".

(b) Foreign currencies

The individual financial statements of each Group member are presented in the currency of the primary economic environment in which the entity is active (its functional currency). For the purpose of drawing up the consolidated annual accounts, the results and the financial position of each entity are expressed in euros, that is the functional currency of the parent company, and that in which the consolidated financial statements are presented.

Transactions in foreign currencies

A transaction undertaken in a foreign currency, when first recorded in the functional currency, is recorded by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency on the date of the transaction. On every balance sheet date monetary items in a foreign currency are converted on the basis of the closing rate. Non-monetary assets and liabilities are converted at the exchange rate on the transaction date. Foreign exchange differences resulting from the settlement of monetary items or from the conversion of monetary items at exchange rates that differ from those at which they were translated when first recognized, are recognized in the income statement in the period in which they occur as realized or unrealized translation gains or losses. Realized or unrealized translation gains and losses are recognized in the financial result.

The Group enters into term contracts to hedge against exposure to certain exchange rate differences. We refer here to note "(u) derivatives" on the measurement rules for this type of financial instrument and to note "6.20. Risk Management Policy", where this type of instrument is analyzed more closely.

Financial statements of foreign entities

Monetary assets, non-monetary assets and liabilities of foreign entities having a functional currency other than the euro are translated at the closing exchange rate at the balance sheet date. The benefits and charges in each income statement (including the comparative figures) are translated at the average exchange rate. All resulting translation differences are recognized in a separate equity line, more specifically 'translation differences'. However, if the operation is a non-wholly-owned subsidiary, then the relevant proportionate share of the translation difference is allocated to the non-controlling interests.

The following exchange rates were used in preparing the financial statements:

			Closing rate
		31 December 2010 31 December 2009	Change %
1 GBP =	1.16750 €	1.11130 €	5%
1 USD =	0.75460 €	0.69770 €	8%
1 BRL =	0.45300 €	0.40230 €	13%
1 JPY =	0.00926 €	0.00757 €	22%
1 CNY =	0.11450 €	0.10230 €	12%

			Average rate
		31 December 2010 31 December 2009	Change %
1 GBP =	1.16605 €	1.12297 €	4%
1 USD =	0.75488 €	0.71916 €	5%
1 BRL =	0.43072 €	0.36353 €	18%
1 JPY =	0.00861 €	0.00769 €	12%
1 CNY =	0.11166 €	0.10543 €	6%

The average rate has been calculated over the past twelve months.

When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal.

When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests. When the Group disposes of only part of its investment in an associate or joint venture that includes a foreign operation while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss.

Goodwill and fair value adjustments on identifiable assets and liabilities acquired arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the rate of exchange prevailing at the end of each reporting period.-

(c) Segmented information

IFRS 8 "Operating segments" requires disclosure of information about the Group's operating segments and requires a 'management approach', so that the segment information is presented on the same basis as for internal reporting purposes. Additional explanation about each of the operating segments is given in explanatory note "4. Segmented information".

(d) Non-current assets held for sale and discontinued operations

A discontinued operation is a component of the Group that has either been disposed of or is classified as held for sale, which represents a separate significant operating activity or geographical area of operations, is part of a coordinated plan to be disposed of as a separate significant business activity and which can be distinguished operationally and for financial reporting purposes.

The Group classifies a non-current asset (or a group of assets being disposed of) as held for sale when its carrying amount will be realized mainly in a sales transaction and not through the continued used of the same. This condition is fulfilled only when the sale is highly probable and the asset (or the group of assets being disposed of) is immediately available for sale in its present state.

For a sale to be highly probable, management must have committed itself to a plan for selling the asset (or group of assets being disposed of), which is expected to be recognized as a completed sale within one year of the classification date, and an active program to locate a buyer and complete the plan should be initiated. In addition the asset (or disposal group) should be actively marketed at a price which is reasonable in relation to its current fair value.

Immediately before the asset is classified for the first time as held for sale the Group measures the carrying amount of the asset (or of all assets and liabilities in the Group) in accordance with the applicable IFRSs. Non-current assets and groups of assets to be disposed of, when first recognized as held for sale, are measured at the lower of carrying amount and fair value less the cost of selling them. Impairment losses are recorded in the event of any initial or later write-down of an asset (or group of assets to be disposed of) to fair value minus the cost of selling it. Depreciation of such assets is discontinued as from their classification as held for sale. Comparative balance sheet information for prior periods is not restated to reflect the new classification in the balance sheet.

(e) Intangible fixed assets

Intangible fixed assets consist of titles, brand names, customer portfolios, software, licences and ownership and similar rights acquired from third parties or acquired by contribution, along with internally generated software. Intangible assets acquired in a business combination are initially measured at fair value which thus becomes its deemed cost; intangible assets acquired separately are initially measured at cost.

Intangible fixed assets with unlimited useful life

Intangible fixed assets with unlimited useful life are recorded at cost. No amortization is taken on intangible fixed assets with unlimited useful life, but these will be assessed annually to determine whether any impairment has taken place. Where the realizable value of these intangible fixed assets is lower than their carrying amount, an impairment loss will be recorded in the income statement. At the balance sheet data no intangible fixed assets with unlimited useful life were identified.

Intangible fixed assets with limited useful life

Intangible fixed assets with limited useful life are recorded at cost less accumulated amortization and any accumulated impairments. Intangible fixed assets having a limited useful life are amortized over their expected useful life by the straight-line method from the date on which the asset was available. The remaining useful life and the amortization method are assessed annually during the financial year end closing. A change in the useful life of an intangible asset is accounted for prospectively as a change in estimate.

The following useful lives are applied by the Group:

•	Software	5 years
•	Development costs	5 years
•	Licences and ownership rights	5 years
•	Lutosa brand name	10 years
•	Customer portfolio (Retail)	10 years
•	Customer portfolio (Food service)	7 years
•	Customer portfolio (Private label)	2 years

Where the fair value is lower than the carrying amount calculated in this way, impairments losses will be recorded in the income statement.

Research and development

Research expenditure undertaken with a view to acquiring new scientific or technical knowledge and insights is charged to the income statement when incurred.

Development expenditure, where the results are applied to a plan or a design for producing new or significantly improved products and processes, prior to commercial production or use is capitalized if, and only if, all of the recognition criteria set out below are met:

• the product or process is technically or commercially realizable;
• the Group intends to complete the intangible asset and either use it or sell it;
• the product or process can be used or sold;
• the assets are demonstrably likely to generate future economic benefits;
• the Group has adequate technical, financial and other resources to complete the development and to use or sell
• the intangible asset;
• the Group can reliably assess the expenditure allocated to the intangible asset during its development.

The capitalized amount contains all costs that are directly attributable to the bringing into being and production of the asset, so that it can function in the way intended by management. An in-process research and development project acquired in a business combination is recognized as an asset separately from goodwill if its fair value can be measured reliably.

Capitalized development costs are written off on a straight-line basis over the period during which benefits are expected to accrue, from the time that the product or process is ready for use.

(f) Goodwill

Goodwill that arises upon a business combination is initially recorded as an asset on the day control is obtained ('acquisition date').

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. Goodwill is initially recognized as an asset at cost, and subsequently measured at cost less any accumulated impairments.

If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer's previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.

The cash generating unit to which goodwill is attributed is tested annually for impairment, and also whenever an indication exists that the unit may have undergone an impairment, by comparing the carrying amount with its realizable value. The realizable value is the higher of the fair value minus costs to sell and value in use.

Where the realizable value of the cash generating unit is lower than its carrying amount, an impairment will first be recognized against the carrying amount of the goodwill attributed to the unit, and then against the other assets of the unit pro rata to the carrying amount of each asset in the unit. An impairment recognized on goodwill may not be reversed at a later date.

When a subsidiary, joint venture or associated company is sold, the goodwill attributed to it is taken into account in determining the gain or loss on the sale.

The Group policy with regard to the determination of goodwill on the acquisition of an associate is discussed above under the heading "a) consolidation principles".

(g) Tangible fixed assets

Owned assets

The Group has opted for the historical cost model and not for the revaluation model. Property, plant and equipment acquired separately is initially measured at cost. Property, plant and equipment acquired in a business combination is initially measured at fair value, which thus becomes its deemed cost. After initial recognition, tangible fixed assets are measured at cost less accumulated depreciation and any accumulated impairments.

The cost consists of the initial purchase price together with all directly attributable costs incurred in order to make the asset able to function in the intended manner (non-refundable taxes, transport, etc.). The cost of a self-produced asset includes the cost of the materials, direct wage costs and a proportionate share of the production overhead.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as part of the cost of that asset. A qualifying asset is one that takes a substantial period of time to get ready for use or sale.

Subsequent costs

Subsequent costs are included in the carrying amount of the asset or recognized as a separate asset, but only when it is probable that the future economic benefit linked to the item will flow to the Group and when the cost of the item can be reliably assessed. All other repair and maintenance costs are recognized in the income statement when incurred.

Depreciation

Depreciation is recorded by the straight-line method over the expected useful life of the asset. The depreciation of an asset begins as soon as it is ready for its intended use. The depreciation amount is charged to the income statement. No depreciation is taken on land and on properties under construction.

The remaining value and the useful life of an asset are reviewed at least at the end of every financial year, and where expectations differ from previous estimates, the change(s) are treated administratively as a change in estimate in accordance with IAS 8 "Changes in Accounting Estimates and Errors".

Initially the following average useful lives are applied:

•	Buildings	18 years
•	Plant, machinery and equipment:
	Production	13 - 16 years
	Packing	12 - 16 years
	Energy	13 - 20 years
	Other	12 - 15 years
•	Furniture and vehicles	6 years
•	Other equipment	5 years

Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount (see section on "Impairment of assets" below). Gains and losses on the disposal of fixed assets, being the difference between the sales price and the carrying amount of the assets being disposed of, are recognized in the income statement.

Government grants

Government grants relating to the purchase of property, plant and equipment are deducted from the cost of those assets. They are recognized in the balance sheet at their expected value at the time of initial government approval and corrected, if necessary, after final approval. The grant is amortized over the depreciation period of the underlying assets.

(h) Leasing

A leasing agreement is classified as a finance lease when almost all the risks and benefits of ownership are transferred to the lessee. All other forms of leases are regarded as operating leases.

Finance leases

At the beginning of the lease period finance leases are recognized as assets and liabilities at amounts equal to the fair value of the leased asset or, where lower, at the present value of the minimum lease payments. The corresponding liability towards the lessor is recorded in the balance sheet as a liability under a finance lease. In calculating the present value of the minimum lease payments, the discount factor used is the interest rate implicit in the lease, when it is practicable to determine it; otherwise the Company's incremental borrowing rate is used.

The minimum lease payments are recorded partly as financing costs and partly as repayment of the outstanding obligation. Financing costs are allocated to each period of the total lease period in such a way as to give a constant periodic rate of interest over the remaining balance of the obligation. Conditional lease payments are charged to income in the periods in which they are made.

The depreciable amount of a leased asset is systematically attributed to each reporting period during the period of expected use, on a basis consistent with the depreciation principles applied by the lessee to its directly owned assets. When it is reasonably certain that the lessee will acquire ownership at the end of the lease period, the expected period of use is equal to the useful life of the asset. Otherwise the asset is depreciated over the shorter of the lease period or the useful life.

Operating leases

Lease payments on operating leases must be charged to income pro rata temporis during the lease period, except where another systematic form of allocation is more representative for the time pattern of the user's benefit. Benefits (to be) received as an incentive to conclude an operating lease agreement are also spread pro rata temporis over the lease period.

Improvements to buildings held under operating leases are depreciated over their expected useful lives, or, where shorter, the term of the relevant lease.

(i) Impairment of tangible and intangible fixed assets

In accordance with IAS 36, an assessment is made, at each balance sheet date, in respect of the Group's tangible and intangible assets, as to whether there are indications that an impairment loss needs to be recognized on a particular asset. Where an indication exists of such impairment, the realizable value of the asset is estimated. The realizable value of an asset or a cash flow-generating unit is the higher of the fair value after deducting the cost of selling it and its value in use. To determine the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the specific risks attached to the asset.

An impairment loss is recognized whenever the carrying amount of an asset, or the cash flow generating unit to which the asset belongs, is higher than the realizable amount. Impairment losses are recognized directly to the income statement.

Reversal of impairment losses recognized in prior years is included as income when there is an indication that the impairment losses recognized for the asset are no longer needed or the need has decreased. Whenever an impairment is reversed, the carrying amount of the asset is increased up to the revised estimate of its realizable amount, but in such a way that the increased carrying amount is no higher than the carrying amount that would have been determined if no impairment had been recognized on the asset in earlier years.

(j) Inventories

Inventories are measured at the lower of cost (purchase costs or costs of conversion) by the FIFO (first-in, first-out) method and realizable value. The costs of conversion include all direct and indirect costs that are necessarily incurred in bringing the inventories to their present location and state. The net realizable value is the estimated sales price in the ordinary course of business, less the estimated costs of completion and the necessary costs of making the sale. Inventory is written down monthly on the basis of its market value. We refer to note "6.5. Inventories" for further information on the valuation of inventories.

According to IAS 41 "Agriculture", own vegetables which are grown on rented land should be measured on initial recognition until the moment they are harvested at fair value minus costs to sell.

(k) Financial assets

The Group classifies its financial assets in the following categories: 'at fair value through profit or loss' (FaAFVTPL/FaHT), 'available-for-sale' (FaAFS), 'held-to-maturity' (Htm) and 'loans and receivables' (L&R). The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

Criteria for the first-time recognition and for the derecognition of financial assets

The purchase and sale of financial assets are recognized at completion date. This means that an asset is recognized on the date that it is received by the Group, and that it is derecognized on the date that the Group disposes of it.

Criteria for the valuation of financial assets

Financial assets are initially measured at cost, which is equal to the fair value of the purchase price, including transaction costs. For derivatives, transaction costs should be charged to income immediately. Financial assets, other than those at fair value through profit or loss, are tested for impairment when there is objective evidence that they could be impaired. An impairment loss is directly recognized in the income statement.

• Financial assets at fair value through the income statement (FaAFVTPL/FaHT) These include:
• (a) Financial assets which are initially recognized and measured at fair value, and where subsequent changes in fair value are passed through the income statement;
• (b) Financial assets held for trading purposes. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. This includes derivatives that do not serve to hedge a specific transaction.

Both these categories are measured on recognition at their fair value, with subsequent changes in this fair value passed through the income statement.

• Available-for-sale financial assets (FaAFS)

Non-current available-for-sale assets include investments in entities which were not acquired principally for the purpose of selling in the short-term, and which are neither consolidated nor accounted for using the equity method. Available-for-sale financial assets are classified under the 'other non-current financial assets' heading of financial fixed assets. Available-for-sale financial assets are measured, after initial recognition, at fair value in the balance sheet. Investments in equities that are classified as available-for-sale financial assets but for which no price quotation on an active market is available, and the fair value of which cannot be reliably determined, are recognized at their historical cost less any impairments. Gains and losses deriving from changes in the fair value of available-for-sale assets are recorded directly to equity. When the participating interest is sold, received or otherwise disposed off, or when the carrying value of the participating interest is written down owing to an impairment, the accumulated profit (or loss) previously included in equity is transferred to the income statement.

• Held-to-maturity investments (Htm) Held-to-maturity investments are measured at cost, amortized using the 'effective interest method' less any impairments.
• Loans and receivables (L&R) Loans and receivables are measured at amortized cost less any impairments. Based on an examination of all amounts outstanding at balance sheet date, an estimate is made of all loans and receivables of which the ability to collect is in doubt. An impairment loss is recognized in the income statement in the amount of the difference between the carrying amount of the receivables and the current value of the estimated future cash flows. Loans and receivables include here trade receivables, other receivables, short-term financial assets, cash and cash equivalents.

(l) Trade and other receivables

Short-term trade receivables and other receivables are initially measured at fair value. At the end of the financial year, doubtful receivables are estimated based on an assessment of all outstanding amounts. Valuation allowances are recognized in the income statement whenever an objective proof exists that the asset has reduced in value. The amount of the valuation allowance is determined as the difference between the carrying amount of the asset and the present value of the estimated future cash flows discounted at the original effective interest rate at the time of first recognition.

No valuation allowances are taken by the Group for overdue amounts where collection is still deemed probable, for example because outstanding amounts are recoverable from the tax authorities or because the Group holds sufficient security.

(m) Cash and cash equivalents

Cash and cash equivalents consist of cash and call deposits, short-term (< 3 months) investments, cheques and highly liquid short-term investments that can be immediately converted into cash, of which the amount is known and which contain no material risk of reduction in value.

(n) Equity instruments and interestbearing liabilities: distinction

Equity instruments and interest-bearing liabilities issued by the Group are classified on the basis of the economic reality of the contractual agreements and the definitions of the interest-bearing instrument and the equity instrument.

Equity instruments

An equity instrument is any contract that consists of a remaining interest in the Group's assets, after deducting all liabilities. An equity instrument issued by the Group is recognized under equity on the basis of the income received less direct transaction costs.

Interest-bearing liabilities

Interest-bearing liabilities are measured initially at fair value, less attributable transaction costs. After initial valuation interestbearing liabilities are recognized at their amortized cost price, with the difference between the initial amount and the redemption value taken into the income statement pro rata temporis based on the 'effective interest' method.

(o) Equity instruments

Equity instruments of the Group are not revalued.

Own shares

Own shares are deducted from equity and reported in the statement of changes in equity. No gain or loss is recognized on the purchase, sale, issue or cancellation of own shares. Transaction costs directly attributable to the acquisition of own shares (after deducting any taxes) are also deducted from the equity attributable to the shareholders of the company. The result on the disposal of treasury shares sold or cancelled is recognized in retained earnings.

Dividends

Dividends are recognized as amounts payable in the period in which they are formally allotted, after approval by the General Meeting of Shareholders. Until such formal approval, the proposed dividends are included in the Group's consolidated equity.

(p) Provisions

Provisions are set up in the statement of financial position whenever the Group has an existing (legally enforceable or 'de facto') obligation deriving from a past event and it is probable that an outflow of resources representing economic benefits will be necessary in order to complete the transaction, and the amount of the obligation can be reliably estimated. The amount recognized as a provision is the best estimate at the balance sheet date of the outflow needed in order to fulfil the existing obligation, eventually discounted where the time value of money is a relevant factor.

Reorganization or restructuring

A provision for reorganization costs is recorded in those cases where the Group has approved a detailed formal reorganization plan and has created a valid expectation among those involved that the reorganization will be carried out by beginning to implement the plan or by informing the parties involved of the key features of the same prior to the balance sheet date. Restructuring provisions include only the direct expenditure arising from the restructuring which is necessarily incurred on the restructuring and is not associated with the ongoing activities of the entity.

Environmental provisions

Environmental provisions are booked in accordance with applicable statutory duties on one hand and environmental policy developed by the Group on the other.

(q) Employee benefits

Pension obligations

Employee pension plans in the Group take the form in Belgium of 'defined contribution' schemes as the legally required return is basically guaranteed by the insurance company. In such schemes the actuarial risk and the investment risk are borne entirely by the employee. Obligations relating to these plans are recognized directly in the income statement at the time incurred.

Defined pension schemes

The Group has no defined pension schemes.

Share-based payments

Share option programs and warrant plans enable employees and senior management to acquire shares in the company. The fair value of the services received from employees is recognized as an expense. The total amount to be recognized as an expense during the vesting period is determined on the basis of the fair value of the share options granted, not taking into account the impact of market price-unrelated conditions. Account is taken of market price-related conditions in the assumptions concerning the expected number of share options that will become unconditional. At each balance sheet date the Group revises its estimates of the numbers of share options that will become unconditional. Where applicable, the impact of the revision of the original estimates is recognized in the income statement with a corresponding entry to equity over the remainder of the vesting period. If and when the options are exercised, equity is increased by the amount of the monies received.

Other long-term employee benefits

Other long-term employee benefits consist of future remuneration to which employees are entitled based on services rendered during the present or previous periods. These benefits are treated in the same way as defined pension schemes, except that all actuarial gains and losses are recognized immediately, no bandwidth is applied and all past service costs are recognized immediately.

The Group has no other long-term employee benefits.

(r) Other financial liabilities: bank loans

Interest-bearing bank loans and overdrafts are measured initially at fair value after deduction of transaction costs, and are subsequently measured at their amortized cost calculated according to the 'effective interest' method.

(s) Other financial liabilities: subordinated loans

Loans are initially recorded in the financial statements at fair value, net of transaction costs, and then at amortized cost. The difference between the income (net of transaction costs) and the redemption value is recognized in the income statement over the life of the loan by the 'effective interest' method.

(t) Other financial liabilities: trade and other payables Trade and other payables are measured at amortized cost.

(u) Financial assets and liabilities: derivatives

Financial risk factors

The Group uses derivatives to limit risks relating to unfavorable foreign currency and interest-rate fluctuations arising out of operating, financial and investment activities. It is the Group's policy not to speculate in financial derivatives. The Group uses foreign currency buy and sell options, interest-rate swaps and other derivative instruments to control the impact of foreign currency and interest-rate fluctuations. These financial instruments are used solely to hedge exposure to currency and interest-rate risks.

Hedging instruments

The Group has opted not to apply hedge accounting. Should the Group decide in the future to apply hedge accounting, a formal documentation system would then be implemented in order to identify the underlying transaction as fast as possible when entering into new contracts, in order to establish whether the hedging instrument squares with the Group's risk management and to test the appropriateness of the hedging instrument on a permanent basis.

Valuation

Derivatives that represent economic hedging but do not fulfil the strict hedge accounting criteria as prescribed in IAS 39 "Financial Instruments: Recognition and measurement", are treated for accounting purposes as financial assets or financial liabilities measured at fair value (FaAFVPL/FlFVPL), with changes in value being passed through the income statement. The fair value of traded derivatives is equal to their market value. If no market value is available, the fair value is calculated using standard financial valuation models, based upon the relevant market rates at the reporting date. In the case of interest-bearing derivatives, the fair values correspond to the clean price, excluding interest accrued.

(v) Income taxes

Income taxes consist of current and deferred taxes.

The current tax liability is based on the fiscal profit for the year. The current tax is the amount of the income tax owed with respect to the fiscal profit of the period, together with any adjustments relating to prior periods. This amount is calculated based on local tax rates (or tax rates for which the legislative process is essentially completed) at balance sheet date. Current taxes for the current and prior periods are, in so far as not already paid, recognized as a liability. Where the amount already paid in respect of the current and prior periods is greater than the amount due in respect of this period, the balance is recorded as an asset.

Deferred taxes are recognized based on the 'liability' or balance method, for all temporary differences between the carrying amount of assets and liabilities in the financial statements and the corresponding fiscal carrying amount used in calculating the fiscal profit. In general deferred tax liabilities are recognized for all taxable temporary differences, and deferred tax assets are recognized to the extent that taxable profits are available for offsetting against deductible temporary differences. Such liabilities and receivables are not recognized when the temporary differences result from the first-time recognition of goodwill or from the first-time recognition (other than in a business combination) of other assets or liabilities in a transaction that has no effect whatsoever on the pre-tax profit, nor on the fiscal profit. The main temporary differences relate to the depreciation of tangible fixed assets, the effect of changed depreciations on the inventory valuation, the effect of changes in the inventory valuation method (full cost instead of direct cost) at the potato division, the recognition of grants and the impact of the acquisitions.

Deferred tax liabilities are recognized for all taxable temporary differences relating to investments in subsidiaries, branches, associated companies and interests in joint ventures, unless the Group is able to determine when the temporary difference reverses and it is likely that the temporary difference will not reverse in the near future.

The carrying amount of a deferred tax liability should be assessed at every balance sheet date. The Group will reduce the carrying amount of a deferred tax asset to the extent that it is no longer probable that sufficient fiscal profit will be available to permit its application, in part or in whole, to the benefit of the deferred tax asset.

Deferred tax assets and liabilities are measured at the tax rates that are expected to be applicable to the period when the asset is recovered or the liability is settled. Deferred taxes must be taken as income or expenses into the income statement of the period, unless they refer to elements recognized directly to equity, in which case the deferred tax is also recognized directly to equity.

Current tax assets and liabilities are offset only if the entity has a legally enforceable right to offset the recognized amounts and intends to settle the liability on a net basis, or to recover the asset at the same time as settling the liability.

(w) Revenue

Revenue from the sale of goods

Revenue from the sale of goods is recognized when:

• (a) the essential risks and benefits of ownership are transferred;
• (b) the Group retains no de facto control or involvement which normally belong to the owner;
• (c) the amount of the revenue can be reliably determined;
• (d) it is probable that the economic benefits relating to the transaction will flow to the Group;
• (e) the costs already or still to be incurred in respect of the transaction can be reliably measured.

Revenue is measured at the fair value of the remuneration received or to which entitlement is obtained, and represents the amounts due and payable for goods and services delivered in the normal course of business, taking into account the amount of any trade, financial or volume discounts given by the Group.

Government grants

Government grants are recognized at the time that reasonable certainty exists that the Group will fulfil the conditions attached to the grants and the grants will be received. Government grants are systematically recorded as income over the periods needed in order to attribute these grants to the related costs that they are intended to compensate. A government grant received by way of compensation for costs or losses already incurred or with a view to granting immediate financial support to the Group with no future related costs, is recorded as income of the period in which it is received.

Grants related to income

Grants related to income are presented as 'Other Operating Income'.

(x) Finance income and costs

Finance income

Finance income comprises interest income on funds invested (including available-for-sale financial assets), dividend income, gains on the disposal of available-for-sale financial assets, fair value gains on financial assets at fair value through profit or loss, gains on the remeasurement to fair value of any pre-existing interest in an acquiree. Interest is recognized by the 'effective interest method' as specified under IAS 39 "Financial Instruments: Recognition and Measurement". Dividend income from investments is recognized whenever the shareholders' rights to payment have been acquired.

Finance costs

Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions and contingent consideration, losses on disposal of available-for-sale financial assets, dividends on preference shares classified as liabilities, fair value losses on financial assets at fair value through profit or loss, impairment losses recognised on financial assets (other than trade receivables). All financial expenses are recognised at the time at which they arise. Financing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset (see heading "g) tangible fixed assets") are spread as an expense over the financing period using the effective interest method.

Foreign currency gains and losses

Foreign currency gains and losses are reported on a net basis as either finance income or finance cost depending on whether foreign currency movements are in a net gain or net loss position.

(y) Non-recurring income and charges

Operating income and expenses that are related to restructuring programs, impairment losses, environmental provisions or other events and transactions that are clearly distinct from the normal activities of the Group are presented on the face of the income statement as non-recurring items.

(z) Events after balance sheet date

Events after balance sheet date concern the period between the balance sheet date and the date of the approval for publication of the financial statements.

Events after balance sheet date that refer back to situations that existed at the balance sheet date are incorporated into the financial statements. Events after balance sheet date that refer to situations arising only after the balance sheet date are mentioned in the notes only if they can have a significant impact.

2.4 CHANGES TO THE CONSOLIDATION SCOPE

2.4.1 Changes to the consolidation scope: 2010

The following changes in the consolidation scope occurred during the 2010 financial year:

Other changes

In 2010 the name of several subsidiaries has changed: 'Lutosa Italia Srl' has been renamed 'PinguinLutosa Italia Srl'; 'Lutosa Shanghai Ltd' has been renamed 'PinguinLutosa Foods Shanghai Ltd'; and 'Pinguin Foods UK Ltd.' has been renamed 'PinguinLutosa Foods UK Ltd.'

2.4.2 Changes to the consolidation scope: 2009

The following changes in the consolidation scope occurred during the 2009 financial year:

Mergers

On 1 January 2009, in Belgium a silent merger was undertaken of Moerbos NV, Lutosa Trading Company NV and Lutosa-Express NV into Vanelo NV. On 1 January 2009, Primeur NV was also taken over and merged into Vanelo NV. These mergers are part of the plan to simplify the group structure.

New company

On August 7, 2009 the PinguinLutosa CEE Gmbh sales office was established. This company, which is 100% owned by the Group, was fully consolidated for the last 5 months of the 2009 financial year. The sales, operating result and net result of PinguinLutosa CEE Gmbh from its date of foundation to 31 December 2009 amounted to k€305, k€2 and k€2 respectively.

Other changes

Since 1 January 2009 'Pinguin NV' has been renamed 'Pinguin-Lutosa NV' and the name 'Van Den Broeke – Lutosa NV' has also been changed to 'PinguinLutosa Foods NV'.

In 2009 the name of several sales offices has changed as well: 'Lutosa Japan K.K.' has been renamed 'PinguinLutosa Japan K.K.' and 'Pinguin Deutschland Gmbh' has been renamed 'Pinguin-Lutosa Deutschland Gmbh'.

3. USE OF ESTIMATES

Preparing the financial statements in accordance with the IFRS Standards requires management to make judgements, estimates and assumptions that can have an impact on the reported amounts of assets and liabilities, contingent liabilities and assets, income and costs, and elements thereof that are mentioned in the notes.

The estimates made on the reporting date reflect conditions as they existed on that date. The main estimates, judgments and underlying assumptions relate primarily to determining impairments of goodwill, the intangible and tangible fixed assets, deferred tax assets and provisions:

• Impairment losses on goodwill:

The Group tests goodwill and cash generating units annually for impairment where indications exist that goodwill and cash generating units may have fallen in value. This analysis is based on assumptions such as market evolution and market share, evolution of the margins, EBITDA/sales ratio, discount rates and working capital/sales ratio;

• Impairment losses (or reversal of impairment losses) on (in)tangible fixed assets:
• At every reporting date the Group examines whether any indication exists of a possible impairment of (in) tangible fixed assets;
• At every reporting date the Group examines whether any indication exists that an impairment recorded on an asset in a previous reporting period has reduced or no longer exists;
• The recording and calculation of provisions for tax and environmental risks and for restructurings;
• Deferred tax assets:

Deferred tax assets relating to carried-forward tax losses are recognized only to the extent that is probable that sufficient taxable profit will exist in the future in order to recover the carried-forward tax losses. In estimating this, the Group takes into account elements such as budgets, long-term strategies and tax planning opportunities;

• Provisions:

At every year end the Group estimates the future risks and costs of pending disputes, taking advice in particular from outside experts.

The estimates, judgements and related assumptions as described above are based on past experience and on various other factors that are considered reasonable in the given circumstances. The actual outcomes can differ from these estimates. The estimates and underlying assumptions are constantly reassessed.

Management believes that a reasonable basis exists for the estimates and assumptions and that these reflect in the best possible way the outlook for the Group.

4. SEGMENT REPORTING

The information that is reported for PinguinLutosa to the Group's 'chief operating decision makers' with a view to assessing the results and allocating resources, is based on two operating segments, which are further broken down by geographic location. This segmentation basis is employed to allocate resources to the different segments and enables the performance of those segments to be assessed. The management committee judges the results of the segments based on the net result after taxes. The assets and liabilities per segment are those belonging directly to it, including the elements that can reasonably be attributed to the segment (tax assets and tax liabilities are included in segment assets and segment obligations).

For internal 'management reporting' the Group is therefore divided into two segments based on products belonging either to the deep-frozen vegetable segment or to the potato segment where the geographic location is an additional segmentation basis per operating segment.

The Group's various companies are included in the following segments:

• Deep-frozen vegetable segment:

PinguinLutosa NV, Pinguin Langemark NV, Pinguin Aquitaine SAS, PinguinLutosa Foods UK Ltd. and the sales offices MAC Sarl, PinguinLutosa Deutschland GmbH, Pinguin Hong Kong Ltd. and PinguinLutosa CEE Gmbh.

• Potato segment:

PinguinLutosa Foods NV, G&L Van den Broeke-Olsene NV, Vanelo NV and the sales offices Lutosa France Sarl, Lutosa UK Ltd., Lutosa España SA, Lutosa América Latina Ltda, PinguinLutosa Japan K.K., PinguinLutosa Foods Shanghai Ltd and PinguinLutosa Italia Srl.

The distribution of the turnover was allocated to the different countries based on the place where the sales occur. The column 'others' comprises the sales offices of the deep-frozen vegetable division and the potato division.

The same valuation rules are used in this segment reporting as in the consolidated financial statements.

The result of a segment contains the income and costs generated directly by that segment, including the portion of the general income and costs that can reasonably be attributed to the segment.

The assets and liabilities of a segment are those belonging directly to it. With primary segment reporting structured according to the geographic location of the assets, it was easy to attribute the balance sheet items to the respective segments. Assets and liabilities per segment are presented before elimination of intersegment positions. Intersegment transfer pricing is based on market conditions.

Information about major customers

Sales of the Group out of transactions with external customers do not include individual customers that represent 10% or more of sales of the Group1 . This is the case for current accounting year and previous accounting year.

The Group sells its products in more than 105 countries across the world. The table below gives an overview of sales by customer location.

Sales

(in thousands of €)		31/12/2010	31/12/2009
Belgium	54,277	11.22%	50,426	11.54%
United Kingdom	144,782	29.94%	139,480	31.93%
France	73,847	15.27%	72,210	16.53%
Germany	50,276	10.40%	42,370	9.70%
Other EU-countries	99,644	20.61%	91,642	20.98%
Other	60,738	12.56%	40,710	9.32%
Total sales	483,564	100%	436,838	100%

The UK represents 15.3% of the sales of the potato division, as opposed to 44.2% (48.3% in 2009) in the deep-frozen vegetable sector. The percentage decrease (-4.1%) can be explained by the fact that the sales increase in the Belgian deep-frozen vegetable division was larger than in the British division.

In 2010 sales to the 5 largest customers amounted to 18.1% of consolidated sales (2009: 20.5%).

The tables below provide a summary of the performance of each business segment, for the twelve month periods ended 31 December 2009 and 31 December 2010, including revised information for the prior period.

A more detailed discussion of the segment information is provided in the report of the Board of Directors.

¹ In accordance with the IFRS standards, in 2010 the transport costs charged on to customers have been posted under the heading 'sales' and the prior period figures have been adjusted accordingly (we refer to the heading "2.3. Valuation rules").

Segmented information per operating segment at 31 December 2010 is given in the table below:

31/12/2010

(In thousands of €) Deep-frozen vegetable segment

	(Subconsolidated) Belgium	United Kingdom	France	Other	Eliminations	Subconsolidated
RESULTS
Sales	140,916	125,424	10,045	1,688	-32,665	245,408
- sales to external customers	126,745	116,785	66	1,550		245,146
- intersegment sales	14,171	8,639	9,979	138	-32,665	262
Total operating income	132,825	128,803	10,532	2,513	-34,501	240,172
Operating result (EBIT)	-871	6,875	264	98		6,366
Depreciation and reversal of impairment losses on assets	6,376	2,404	900	19		9,699
Write-offs recognized in comprehensive income	220	248				468
Provisions	-33	-332	300			-65
Operating cash flow (EBITDA)	5,692	9,195	1,464	117		16,468
Financial income	1,759	282	90		-481	1,650
Financial expenses	-4,570	-1,634	-240	-8	481	-5,971
Result before taxes	-3,682	5,524	114	90		2,045
Income taxes	223	-1,529	-234	-31		-1,571
Net result	-3,459	3,995	-120	59		474
Non-recurring income	150	2,624				2,774
Non-recurring expenses	-402	-1,185	-300			-1,887
Operating result before non-recurrings (REBIT)	-619	5,436	564	98		5,479
ASSETS AND LIABILITIES
Segment assets	212,983	91,364	12,432	876	-46,932	270,723
Segment obligations	144,854	70,065	8,382	602	-19,371	204,532
Segment non-current assets	131,158	16,100	8,673	97	-27,561	128,467
OTHER INFORMATION
Number of interim employees (year end)*		159	11			170
Number of employees (year end)*	330	261	39	7		637

	(Subconsolidated) Belgium	Other	Eliminations	Subconsolidated	Eliminations	Consolidated
RESULTS
Sales	239,285	3,330	-2,597	240,018	-1,862	483,564
- sales to external customers	237,607	811		238,418		483,564
- intersegment sales	1,678	2,519	-2,597	1,600	-1,862	0
Total operating income	237,726	3,748	-2,795	238,679	-3,944	474,907
Operating result (EBIT)	729	228		957		7,323
Depreciation and reversal of impairment losses on assets	9,540	55		9,595		19,294
Write-offs recognized in comprehensive income	86			86		554
Provisions				0		-65
Operating cash flow (EBITDA)	10,355	283		10,638		27,106
Financial income	1,066	6		1,072	-14	2,708
Financial expenses	-1,422	-9		-1,431	14	-7,388
Result before taxes	371	226		598		2,643
Income taxes	1,750	-67		1,683		112
Net result	2,121	159		2,281		2,755
Non-recurring income				0		2,774
Non-recurring expenses				0		-1,887
Operating result before non-recurrings (REBIT)	729	228		957		6,436
ASSETS AND LIABILITIES
Segment assets	158,739	1,590	-1,112	159,217	-9,703	420,237
Segment obligations	86,243	701	-250	86,694	-9,703	281,523
Segment non-current assets	113,245	174	-386	113,033	-53,199	188,301
OTHER INFORMATION
Number of interim employees (year end)*	77			77		247
Number of employees (year end)*	621	25		646		1.283

31/12/2010

(In thousands of €) Potato segment

Segmented information per operating segment at 31 December 2009 is given in the table below:

31/12/2009

(In thousands of €) Deep-frozen vegetable segment

	(Subconsolidated) Belgium	United Kingdom	France	Other	Eliminations	Subconsolidated
RESULTS
Sales	126,896	118,761	18,823	586	-40,672	224,394
- sales to external customers	109,644	110,850	3,470	369		224,333
- intersegment sales	17,252	7,911	15,353	217	-40,672	61
Total operating income	135,591	127,803	19,308	1,283	-42,303	241,682
Operating result (EBIT)	839	5,158	1,093	135		7,225
Depreciation and reversal of impairment losses on assets	6,357	2,448	866	19		9,690
Write-offs recognized in comprehensive income	59	504		-13		550
Provisions		704	344	2		1,050
Operating cash flow (EBITDA)	7,255	8,814	2,303	143		18,515
Financial income	2,507	29	104		-107	2,533
Financial expenses	-8,606	-1,308	-278	-6	107	-10,091
Result before taxes	-5,260	3,879	919	129		-333
Income taxes	1,180	-2,069	-262	-35		-1,186
Net result	-4,080	1,810	657	94		-1,519
Non-recurring income						0
Non-recurring expenses		-704	-350			-1,054
Operating result before non-recurrings (REBIT)	839	5,862	1,443	135		8,279
ASSETS AND LIABILITIES
Segment assets	219,958	78,650	16,841	1,464	-38,738	278,175
Segment obligations	144,304	62,187	12,671	1,251	-11,175	209,238
Segment non-current assets	132,733	13,093	9,470	112	-27,561	127,847
OTHER INFORMATION
Number of interim employees (year end)*		76	13			89
Number of employees (year end)*	353	279	42	8		682

	(Subconsolidated) Belgium	Other	Eliminations	Subconsolidated	Eliminations	Consolidated
RESULTS
Sales	212,666	2,810	-1,990	213,486	-1,042	436,838
- sales to external customers	211,685	820		212,505		436,838
- intersegment sales	981	1,990	-1,990	981	-1,042	0
Total operating income	208,509	2,883	-2,186	209,206	-4,090	446,798
Operating result (EBIT)	7,738	78		7,816		15,041
Depreciation and reversal of impairment losses on assets	9,692	50		9,742		19,432
Write-offs recognized in comprehensive income	28			28		578
Provisions				0		1,050
Operating cash flow (EBITDA)	17,458	128		17,586		36,101
Financial income	955	1		956	-52	3,437
Financial expenses	-1,398	-15		-1,413	52	-11,452
Result before taxes	7,295	64		7,359		7,026
Income taxes	4,534	-44		4,490		3,304
Net result	11,829	20		11,849		10,330
Non-recurring income				0		0
Non-recurring expenses				0		-1,054
Operating result before non-recurrings (REBIT)	7,738	78		7,816		16,095
ASSETS AND LIABILITIES
Segment assets	150,447	1,286	-690	151,043	-28,737	400,481
Segment obligations	94,398	582	-148	94,832	-28,737	275,333
Segment non-current assets	64,412	161	-386	64,187		192,034
OTHER INFORMATION
Number of interim employees (year end)*	48			48		137
Number of employees (year end)*	631	28		659		1.341

31/12/2009

(In thousands of €) Potato segment

5. NOTES TO THE CONSOLIDATED INCOME STATEMENT

5.1 SALES

The Group's sales consist mainly of the sale of deep-frozen vegetable and potato products. The Group also sells, through PinguinLutosa Foods NV and Vanelo NV, chilled potato products (10.0% of total sales).

Sales

(in thousands of €)	31/12/2010	31/12/2009
Sales 'Deep-frozen'	435,429	390,779
Sales 'Chilled'	48,135	46,059
Total sales	483,564	436,838

In accordance with the IFRS standards, in 2010 the transport costs charged on to customers have been presented under the heading 'sales' and the prior period figures have been adjusted accordingly. k€7,296 of all transport costs charged on to customers in 2010 (k€7,867) can be attributed to the potato division, whereas k€5,019 of all transport costs charged on to customers in 2009 (k€5,484) can be attributed to the potato division.

Consolidated sales have increased by 10.7% compared to the previous financial year. In 2010 the sales of the potato division amount to k€238,417 (49.3% of total sales), of which k€48,135 was in the fresh-chilled sector (essentially fresh-chilled fries and potato flakes). In 2009 the share of the potato division was 48.6% (k€212,040), of which k€46,059 was in the fresh-chilled sector. The increase of sales in the potato division by 12.4% can be explained by the higher sales volume in 2010 (+13.8%).

The deep-frozen vegetable segment represents 50.7% of the consolidated sales of the Group (31 December 2009: 51.5%). The increase of sales in this segment (+9.1%) compared to prior year is also due to the organic growth that characterised PinguinLutosa in 2010. During the previous financial year, volumes sold within the deep-frozen vegetable division increased by 10.8%.

5.2 OTHER OPERATING INCOME

Other operating income

(in thousands of €)	31/12/2010	31/12/2009
Operating subsidies	22	30
Rentals	478	1,244
Compensation for the partial vacation of part of the site at King's Lynn (construction of a supermarket)	2,624
Signing fee: green energy project	150
Insurance compensation received	158	152
Realised capital gain	16	180
Costs passed on in the context of the delivery of green energy	355	453
Other	2,754	1,767
Total	6,557	3,826

Leasing income is attributable, as in 2009, to the leasing out of deep-freeze units at the King's Lynn site (United Kingdom). The lease contract came to an end in mid-2010; the revenues are therefore substantially lower than last year.

In 2010, other operating income includes a compensation amounting to k€2,624 that the Group receives for the vacation of part of the site at King's Lynn for the construction of a supermarket (for further explanation we refer to note "5.4. Operating result (EBIT)").

The 'other' item above consists primarily of packaging materials invoiced to customers (mainly pallets), the sale of used cooking fats and the invoicing of diverse costs.

5.3 OPERATING CHARGES

The Group's operating charges can be broken down as follows:

Operating charges (in thousands of €)	31/12/2010	31/12/2009
Raw materials, consumables and goods for resale	264,797	236,440
Purchase of fresh vegetables and potatoes	128,053	116,554
Purchase of frozen vegetables	62,158	46,977
Purchase of packing materials	35,642	31,433
Purchase of frying oils	11,301	10,387
Storage and work by third parties	11,584	9,985
Transport costs related to purchasing activities	3,712	4,657
Purchase of ingredients	9,215	7,426
Purchase of seeds	1,135	1,331
Other	1,997	7,690
Services and other goods	121,811	113,276
Transport	32,295	25,656
Energy	31,919	34,293
Maintenance + IT	16,264	16,248
Rent (forklifts, hardware, buildings, …)	10,185	10,169
Interim wages	12,755	8,887
Insurance	2,474	2,116
External advisory	2,036	2,098
Costs related to sales and administration	7,562	5,020
Cost effluent PinguinLutosa Foods UK Ltd.	1,313	1,050
Other	5,008	7,739
Personnel costs	58,253	57,804
Depreciation and reversal of impairment losses on assets	19,294	19,432
Depreciation	18,912	19,432
Impairment losses on assets	382
Write-downs and provisions	489	1,628
Write-down of inventories	354	478
Write-down of trade debtors	200	100
Provisions	-65	1,050
Other operating charges	2,940	3,177
Total	467,584	431,757

During the 2010 financial year, k€42,969 of fresh vegetables (2009: k€56,517) and k€85,085 of fresh potatoes were purchased (2009: k€60,037). The large increase in the potato division is partly compensated by the decrease in the deep-frozen vegetable division. The large increase in the potato division is due to the increased raw material prices and the higher volumes produced and sold in 2010.

Energy costs make up 26.2% of the heading 'services and other goods' and decrease by k€2,374 compared to prior year, which is mainly due to a price decrease. The total amount of k€31,919 can be broken down into k€12,758 for the processing of deep-frozen vegetables and k€19,161 for the processing of potato products.

Transport costs total k€32,295. Of this amount, k€13,414 can be allocated to the deep-frozen vegetable division and k€18,881 to the potato division. The considerable increase of the transport costs on the sales side are on the one hand due to the increase of volumes sold (deep-frozen vegetable division: +10.8% / potato division: +13.8%) and on the other hand due to an increased unit price.

In 2010 interim wages are k€3,868k higher than prior year. k€2,107 of this increase can be allocated to the deep-frozen vegetable division (mainly United Kingdom) and k€1,761 to the potato division.

The heading 'write-downs and provisions' contains both in 2009 and 2010 a number of non-recurring events. For a detailed discussion the reader is referred to note "5.4. operating result (EBIT)".

5.4 OPERATING RESULT (EBIT)

The operating profit from continuing activities amounts to k€7,323 per 31 December 2010, versus k€15,041 per 31 December 2009. We refer to the consolidated annual report of the Board of Directors for a more detailed discussion of the operating profit.

Operating result, including effect of non-recurring events

Operating result

(in thousands of €)	31/12/2010	31/12/2009
Operating result (EBIT)	7,323	15,041

Effect of non-recurring events

Non-recurring costs and income

(in thousands of €)	31/12/2010	31/12/2009
Operating result before non-recurrings (REBIT)	6,436	16,095
Non-recurring costs	-1,887	-1,054
Restructuring costs: redundancy costs		-320
Costs related to closing of site in Easton	-211
Costs related to the acquisition of D'aucy Frozen Foods	-402
Provision for compensation for damages related to cleaning and repair works on the property and water-purification installation of third parties at Ychoux	-300	-250
Provision for claim with respect to the Pinguin Aquitaine SAS subsidies		-100
Provision for claim relating to clearing and repair costs when the rented site in Easton was vacated		-337
Costs related to the relocation on the site at King's Lynn (including impairment losses on tangible fixed assets)	-732
Other	-241	-48
Non-recurring income	2,774	0
Signing fee related to the green energy project in Belgium	150
Compensation for the vacation of part of the site at King's Lynn	2,624
Net non-recurring costs (-) / income	887	-1,054
Operating result (EBIT)	7,323	15,041

The non-recurring costs included in the operating profit for the year to 31 December 2010 relate on the one hand to the booking of additional costs in an amount of k€211 when the rented site in Easton (United Kingdom) was vacated. In addition, in the United Kingdom also a number of works have been performed in order to make possible the vacation of part of the site at King's Lynn (k€351). Following this removal, an impairment loss on fixed assets has been booked in an amount of k€382. In Pinguin Aquitaine SAS an additional provision has been recorded for the claim received related to cleaning and repair works on the property and water-purification installation of third parties. In the Belgian deep-frozen vegetable division, the operating result has been negatively influenced by non-recurring acquisition costs related to D'aucy Frozen Foods, which will be part of the Group as from 1 May 2011 onwards. The heading 'others' includes costs that are mainly related to a fire on the site at King's Lynn and the evacuation of a number of cold stores because of danger of collapse on the site at King's Lynn.

The non-recurring income items included in the operating result for the year to 31 December 2010 relate to a compensation that the Group has received for the vacation of part of the site at King's Lynn for the construction of a supermarket and on the other hand a signing fee related to a green energy project in Belgium.

The one-off expenses included in the operating result at 31 December 2009 on the one hand relate to the British subsidiary PinguinLutosa Foods UK Ltd. and on the other hand to Pinguin Aquitaine SAS. In PinguinLutosa Foods UK Ltd. a k€337 provision has been entered as a result of a claim relating to clearing and repair costs when the rented site in Easton was vacated. The result also includes costs related to redundancies at the Boston site, in the amount of k€320. In Pinguin Aquitaine SAS, 2 provisions were made for a total amount of k€350. For a detailed discussion the reader is referred to note "7.2. Pending disputes".

There are no one-off profits included in the operating result at 31 December 2009.

The 2009 financial year includes a net non-recurring cost of k€1,054. For 2010 this figure is a net non-recurring income of k€887 (difference of k€1,941).

5.5 FINANCIAL INCOME AND EXPENSES

The financial income and expenses of the Group can be broken down as follows:

Financial income and expenses (in thousands of €)	31/12/2010	31/12/2009
Financial income	2,708	3,437
Operating financial income
- Interest income	27	44
- Other operating financial income	35	60
Non-operating financial income
- Valuation to fair value of derivatives	1,073
- (Un)realized exchange results and conversion differences
	1,573	3,333
Financial expenses	-7,388	-11,452
Operating financial expenses
- Interest charges on interest-bearing liabilities	-5,675	-5,997
- Interest on leasing	-103	-147
Non-operating financial expenses
- (Un)realized exchange results and translation differences	-52	-543
- Valuation to fair value of derivatives		-3,174
- Other	-1,558	-1,591
Financial result	-4,680	-8,015

The financial result for the past financial year is considerably more positive (by k€3,335) than that of the previous financial year. This increase is the combined effect of slightly lower interest charges and a positive change in the fair value of the financial instruments (IRS).

The financial result for 2010 includes a net foreign exchange gain in the amount of k€1,521 (k€2,790 per 31 December 2009) and a positive change in the value of the financial instruments related to hedging against the interest rate risk in the amount of k€1,073, whereas in 2009 a negative change in the value of financial instruments was recorded in an amount of k€-3,174.

The other financial expenses of k€1,558 consist on the one hand of bank charges and the operating costs related to the invoice discounting facility. On the other hand this category also includes the costs of the club deal which will be taken into income over the course of the financing term (k€639 per 31 December 2010).

5.6 INCOME TAXES

31/12/2010	31/12/2009
-1,688	-7,728
-227	251
2,027	10,781
112	3,304
31/12/2010	31/12/2009

Effective tax rate	-4.23%	-47.02%
Effective tax charge	112	3,304
- Other	-180	-334
- Utilization of deferred tax assets previously recognized		-979
- Utilization of deferred tax assets non previously	162	7,229
- Non-recognised deferred tax assets on tax losses	-27	-607
- Movement of taxed reserves	81	-58
- Current tax adjustments relating to prior periods	-227	251
- Deduction of risk capital	1,135	332
- Non-deductible expenses	-337	-385
Tax effect of:
Average theoretical tax rate	18.74%	30.53%
Theoretical tax charge	-495	-2,145
Effect of different tax rates in other countries	403	243
Tax expense (-)/income at the Belgian tax rate	-898	-2,388
Theoretical tax rate	33.99%	33.99%
Result before taxes (profit/loss (-))	2,643	7,026

For the reporting period ending on 31 December 2009, the tax rate used in the United Kingdom amounted to 28.0%. As from April 2010 onwards and for the reporting period which ended on 31 December 2010 a tax rate of 27.0% is used. This change in tax rate had a positive impact of €0.1 million on the calculation of the deferred tax liabilities in PinguinLutosa Foods UK Ltd..

For a detailed discussion the reader is referred to note "6.8. Deferred tax assets and deferred tax liabilities".

5.7 EARNINGS PER SHARE

Earnings per share is calculated by dividing the Group's share in the net result by the weighted average number of shares outstanding during the year (total number of shares – own shares).

Earnings per share

(in € per share)	31/12/2010	31/12/2009
	Basic	Basic
Weighted average number of ordinary shares (in numbers)	10,863,984	10,713,733
Net profit (loss) attributable to ordinary shareholders (in thousands of €)	2,813	10,012
- Net profit (loss) from continuing operations	2,813	10,012
Earnings per share (in € per share)	0.26	0.93
- Earnings per share from continuing operations	0.26	0.93

In the absence of warrants or option plans in 2009 and 2010, there is no dilution effect in calculating earnings per share.

6. NOTES TO THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION

6.1 INTANGIBLE FIXED ASSETS

Software, brand name and customer base

(in thousands of €)	31/12/2010	31/12/2010	31/12/2010	31/12/2010
	Software	Brand name	Customer base	TOTAL
		Lutosa	Lutosa
ACQUISITION VALUE
Balance at the end of the preceding period	2,963	654	4,497	8,114
Additions	723			723
Acquisitions through business combinations
Changes in consolidation scope
Sales and disposals
Transfer from one heading to another
Translation differences	1			1
Other movements
Balance at the end of the period	3,687	654	4,497	8,838
DEPRECIATIONS AND IMPAIRMENT LOSSES
Balance at the end of the preceding period	1,472	147	2,012	3,631
Depreciation	416	65	520	1,001
Impairment losses
Reversals
Withdrawals after sales and disposals
Transfer from one heading to another
Translation differences
Other movements
Balance at the end of the period	1,888	212	2,532	4,632
NET CARRYING AMOUNT BEFORE INVESTMENT GRANTS	1,799	442	1,965	4,206
Net investment grants
NET CARRYING AMOUNT AT THE END OF THE PERIOD	1,799	442	1,965	4,206

Investments in intangible fixed assets amount to €0.7 million and relate to software. These software investments consist primarily of SAP licences (€0.6 million).

Software, brand name and customer base

(in thousands of €)	31/12/2009	31/12/2009	31/12/2009	31/12/2009
	Software	Brand name	Customer base	TOTAL
		Lutosa	Lutosa
ACQUISITION VALUE
Balance at the end of the preceding period	2,667	654	4,497	7,818
Additions	150			150
Acquisitions through business combinations
Changes in consolidation scope
Sales and disposals
Transfer from one heading to another	146			146
Translation differences
Other movements
Balance at the end of the period	2,963	654	4,497	8,114
DEPRECIATIONS AND IMPAIRMENT LOSSES
Balance at the end of the preceding period	1,004	82	1,176	2,262
Depreciation	468	65	836	1,369
Impairment losses
Reversals
Withdrawals after sales and disposals
Transfer from one heading to another
Translation differences
Other movements
Balance at the end of the period	1,472	147	2,012	3,631
NET CARRYING AMOUNT BEFORE INVESTMENT GRANTS	1,491	507	2,485	4,483
Net investment grants
NET CARRYING AMOUNT AT THE END OF THE PERIOD	1,491	507	2,485	4,483

6.2 GOODWILL

This note relates to the goodwill upon the consolidation of subsidiaries. The principal movements in goodwill are the following:

Goodwill
(in thousands of €)	31/12/2010	31/12/2009
ACQUISITION VALUE
Balance at the end of the preceding period	52,773	52,687
Additions
Deconsolidations
Translation differences	59	86
Transfers
Elimination of goodwill on the purchase of non-controlling interests
Restatements
Balance at the end of the period	52,832	52,773
IMPAIRMENT LOSSES
Balance at the end of the preceding period	0	0
Impairment losses: addition
Sales and disposals
Translation differences
Balance at the end of the period	0	0
NET CARRYING AMOUNT AT THE END OF THE PRIOR PERIOD	52,773	52,687
NET CARRYING AMOUNT AT THE END OF THE PERIOD	52,832	52,773

IAS 36 requires the carrying value of goodwill acquired in a business combination to be allocated in a reasonable and consistent basis to each cash flow generating unit or smallest group of cash flow generation units. The goodwill on a cash flow generating unit acquired over the course of the financial year is tested at the time of acquisition.

The Group tests the goodwill for impairment annually and at intervals when there are indications that the value of goodwill may have dropped.

Assumptions related to the impairment tests at 31 december 2010

The goodwill related to the acquisition of the potato division (Lutosa Group) in 2007 amounts to €51.6 million and is fully attributed to the potato segment. The realizable value of the cash flow generating unit is determined on the basis of the value in use. The 20-year cash flow forecasts are based on the financial budget of 2011 which has been approved by management and the Board of Directors. The following 19 years have been extrapolated based on this budget of 2011. The value in use is based on a perpetuity of cash flows for 20 years, based on the budget of 2011 with an average growth rate of 1.2% for the following 19 years. The EBITDA margin that is applied is equal to the EBITDA margin planned for 2011. Cash flows are discounted at an after-tax discount rate of 7.85%. The results of this test have shown that the value in use exceeds the carrying value of the cash flow generating unit (the 'headroom') by €45.4 million. The major sensitivities for the impairment tests are the EBITDA margin and the discount rate. This 'headroom' would reduce to zero if the EBITDA margin which is applied in calculating the value in use were to fall by 193 base points or if the after-tax discount rate were to rise by 205 base points. Based on the above assumptions the Group has decided that no impairment losses need to be recorded at 31 December 2010 on the goodwill of the potato segment.

The goodwill on the acquisition of the 'Christian Salvesen Foods' segment in 2007 amounts to €1.2 million and is attributed in full to the deep-frozen vegetable division. The 20-year cash flow forecasts are based on financial budget of 2011 which is approved by management and the Board of Directors. The following 19 years have been extrapolated based on this budget of 2011. The value in use is based on a perpetuity of cash flows for 20 years, based on the budget of 2011 with an average growth rate of 1.5% for the following 19 years. The EBITDA margin that is applied is equal to the EBITDA margin planned for 2011. Cash flows are discounted at an after-tax discount rate of 7.85%. The results of this test have shown that the value in use exceeds the carrying value of the cash flow generating unit (the 'headroom') by £19.1 million. The major sensitivities for the impairment tests are EBITDA margin and the discount rate. This 'headroom' would reduce to zero if the EBITDA margin used in calculating the value in use were to fall by 392 base points or if the after-tax discount rate were to rise by 1,315 base points. Based on the above assumptions the Group has decided that no impairment losses need to be recorded at 31 December 2010 on the goodwill of Christian Salvesen Foods.

Assumptions relating to the impairment tests at 31 December 2009

The goodwill relating to the acquisition of the potato division (Lutosa Group) in 2007 amounts to €51.6 million and is attributed in full to the potato segment. The realizable value of the cash flow generating unit is determined on the basis of the value in use. The 20-year cash flow forecasts are based on the financial budget of 2010 which has been approved by management and the Board of Directors. The following 19 years have been extrapolated based on this budget of 2010. The value in use was based on a perpetuity of cash flows for 20 years, based on the budget of 2010 with a growth rate of 3% for years 2 to 5 and a growth rate of 1.5% for the following 15 years. The EBITDA margin that was applied is equal to the EBITDA margin planned for 2010. Cash flows were discounted at an after-tax discount rate of 7.78%. The results of this test have shown that the value in use exceeds the carrying value of the cash flow generating unit (the 'headroom') by €11.5 million. The major sensitivities for the impairment tests are the EBITDA margin and the discount rate. This 'headroom' would reduce to zero if the EBITDA margin which is applied in calculating the value in use were to fall by 54 base points or if the after-tax discount rate were to rise by 54 base points. Based on the above assumptions the Group has decided that no impairment losses need to be recorded at 31 December 2009 on the goodwill of the potato segment.

The goodwill on the acquisition of the 'Christian Salvesen Foods' segment in 2007 amounts to €1.2 million and is attributed in full to the deep-frozen vegetable division. The 20-year cash flow forecasts are based on the financial budget of 2010 which has been approved by management and the Board of Directors. The following 19 years have been extrapolated based on this budget of 2010. The value in use was based on a perpetuity of cash flows for 20 years, based on the budget of 2010 with a growth rate of 3% for the year 2 till year 5 and a growth rate of 1.5% for the following 15 years. The EBITDA margin that was applied is equal to the EBITDA margin planned for 2010. Cash flows were discounted at an after-tax discount rate of 7.78%. The results of this test have shown that the value in use exceeds the carrying value of the cash flow generating unit (the 'headroom') by £8.9 million. The major sensitivities for the impairment tests are the EBITDA margin and the discount rate. This 'headroom' would reduce to zero if the EBITDA margin used in calculating the value in use were to fall by 424 base points or if the after-tax discount rate were to rise by 424 base points. Based on the above assumptions the Group has decided that no impairment losses need to be recorded at 31 December 2009 on the goodwill of Christian Salvesen Foods.

The carrying amount of goodwill and related impairment losses have been allocated as follows:

Goodwill per cash

Net carrying amount at the end of the period	52,832	52,773
Deep-frozen vegetable division (ex-Christian Salvesen Foods)	1,210	1,151
Potato division	51,622	51,622
	Net carrying amount	Net carrying amount
generating unit (in thousands of €)	31/12/2010	31/12/2009

6.3 TANGIBLE FIXED ASSETS

The investments in tangible fixed assets amount to €14.5 million per 31 December 2010 and mainly consist of investments in 'land and buildings' (€0.5 million), in 'plant, machinery and equipment' (€13.2 million) and in 'furniture and vehicles' (€0.8 million).

The investments in the heading 'plant, machinery and equipment' relate primarily to the deep-frozen vegetable division in Belgium (€4.0 million), PinguinLutosa Foods UK Ltd. (€5.1 million) and the potato division (€4.0 million).

• The major 'plant, machinery and equipment' investments at 31 December 2010 at PinguinLutosa NV (€2.9 million) relate to an automatic transport system (€0.9 million), optimization investments in the cooling systems (€0.7 million) and optimization investments in production lines (€0.5 million). During the 2010 financial year, Pinguin Langemark NV invested €1.1 million under 'plant, machinery and equipment', mainly a new small packaging line (€0.4 million), optimization investments in the leek line (€0.2 million) and optimization investments in the cooling systems (€0.1 million).
• The major investments at 31 December 2010 at Pinguin-Lutosa Foods UK Ltd relate to automation investments to the infeed line (€1.4 million), the purchase of wooden boxes (€0.2 million), optimisation investments in the packaging halls and the loading quays (€0.8 million) and a cold store racking installation (€0.3 million) at the King's Lynn site, a condensor (€0.1 million) at the Bourne site and optimization investments (€0.6 million) at the Boston site.
• During the 2010 financial year the potato division invested in the heading 'plant, machinery and equipment' at the Leuze-en-Hainaut site (€2.9 million), mainly in a specialty line (€0.6 million), a steam pealer (€0.2 million), optical sorting machines (€0.6 million), optimization investments in water purification (€0.3 million) and the steam installation (€0.3 million). In addition, the potato division invested in 'plant, machinery and equipment' at the site at Sint-Eloois-Vijve for an amount of €1.1 million, mainly in an optical sorting machine (€0.5 million), a weighing installation (€0.2 million) and compressors (€0.1 million).

In 2010, no financing costs were attributed directly to the acquisition, construction or production of an eligible asset and activated in accordance with IAS 23 as part of the cost price of that asset.

Tangible fixed assets

at 31 December 2010

at 31 December 2010 (in thousands of €)	Land and buildings	Plant, machinery and equipment	Furniture and vehicles	Leasing	Assets under construction	Other	31/12/2010
ACQUISITION VALUE
Balance at the end of the preceding period	35,607	142,735	3,862	2,793	250	1,201	186,448
Additions	530	13,191	785			21	14,527
Acquisitions through business combinations
Sales and disposals		-481	-56	-43			-580
Reclassification as assets held for sale
Transfers from one heading to another		250			-250
Translation differences		1,371	11	8		1	1,391
Other		-17		17
Balance at the end of the period	36,137	157,049	4,602	2,775	0	1,223	201,786
DEPRECIATIONS AND IMPAIRMENT LOSSES
Balance at the end of the preceding period	7,786	43,074	1,406	-1,769	0	90	50,587
Depreciation and reversal of depreciation (-)	1,706	15,114	665	526		80	18,091
Impairment losses		382					382
Reversal after sales and disposals		-73	-52	-28			-153
Reclassification as assets held for sale
Transfers from one heading to another
Translation differences		777	4	3			784
Other		-4		4			0
Balance at the end of the period	9,492	59,270	2,023	-1,264	0	170	69,691
NET CARRYING AMOUNT BEFORE INVESTMENT GRANTS AND RECLASS LEASING	26,645	97,779	2,579	4,039	0	1,053	132,095
Net investment grants	-386	-586	-3				-975
Reclass leasing	2,530	1,379	130	-4,039			0
NET CARRYING AMOUNT AT THE END OF THE PERIOD (31 december 2010)	28,789	98,572	2,706	0	0	1,053	131,120

Tangible fixed assets

				at 31 December 2009
--	--	--	--	---------------------	--	--

at 31 December 2009 (in thousands of €)	Land and buildings	Plant, machinery and equipment	Furniture and vehicles	Leasing	Assets under construction	Other	31/12/2009
ACQUISITION VALUE
Balance at the end of the preceding period	35,146	130,241	3,277	3,418	0	632	172,714
Additions	467	10,327	454	37	391	569	12,245
Acquisitions through business combinations
Sales and disposals	-6	-147	-141	-49			-343
Reclassification as assets held for sale
Transfers from one heading to another		412	259	-676	-141		-146
Translation differences		1,791	13	63			1,867
Other		111					111
Balance at the end of the period	35,607	142,735	3,862	2,793	250	1,201	186,448
DEPRECIATIONS AND IMPAIRMENT LOSSES
Balance at the end of the preceding period	6,100	26,711	736	-2,065	0	21	31,503
Depreciation and reversal of depreciation (-)	1,688	15,221	687	536		69	18,201
Impairment losses
Reversal after sales and disposals	-2	-62	-46	-36			-146
Reclassification as assets held for sale
Transfers from one heading to another		197	24	-221			0
Translation differences		969	5	17			991
Other		38					38
Balance at the end of the period	7,786	43,074	1,406	-1,769	0	90	50,587
NET CARRYING AMOUNT BEFORE INVESTMENT GRANTS AND RECLASS LEASING	27,821	99,661	2,456	4,562	250	1,111	135,861
Net investment grants	-432	-707	-4	-57			-1,201
Reclass leasing	2,626	1,918	211	-4,505	-250		0
NET CARRYING AMOUNT AT THE END OF THE PERIOD (31 december 2009)	30,014	100,872	2,663	0	0	1,111	134,660

In accordance with IAS 16, estimates with regard to remaining value, useful life and depreciation methods are reviewed annually and any significant changes in estimates have to be notified. As such, the Group tested the useful life of the tangible fixed assets for under- and overvaluation. The review did not reveal any need to adapt useful lives for the present period, but these will be reviewed annually and will be kept up-to-date.

At 31 December 2010 the Group's fixed assets were encumbered as follows:

• Subscription on mortgages: k€1,000 (31 December 2009: k€1,000)
• Mortgage mandates: k€9,000 (31 December 2009: k€9,000)

6.4 OTHER NON-CURRENT FINANCIAL ASSETS

Other non-current financial assets
(in thousands of €)	31/12/2010	31/12/2009
ACQUISITION VALUE
Balance at the end of the preceding period	380	380
Additions		35
Acquisitions through business combinations
Disposals and closures
Translation differences
Transfers
Changes in the consolidation method		-35
Balance at the end of the period	380	380
IMPAIRMENT LOSSES
Balance at the end of the preceding period	-380	-380
Impairment losses: addition
Impairment losses: reversal
Translation differences
Transfers
Changes in the consolidation me thod
Balance at the end of the period	-380	-380
NET CARRYING AMOUNT AT THE END OF THE PRIOR PERIOD	0	0
NET CARRYING AMOUNT AT THE END OF THE PERIOD	0	0

This heading covers all unconsolidated investments. In addition, these are investments in unlisted entities and these investments are not significant in the context of the consolidated Group. As no reliable estimate can be made of the fair value of the other participating interests, financial assets for which no active market exists are valued at cost less any impairments.

6.5 INVENTORIES

Inventories (in thousands of €)	31/12/2010	31/12/2009
Raw materials and consumables (deep-frozen vegetable segment)	5,810	4,536
Raw materials and consumables (potato segment)	9,838	7,350
Finished goods (deep-frozen vegetable segment)	79,455	88,565
Finished goods (potato segment)	17,462	21,701
Total inventories	112,566	122,152

Inventories of the deep-frozen vegetable segment

Inventories are subject to a 'Net Realizable Value' (NRV) principle, in which the average inventory price for each vegetable sub-group is compared with the average outstanding contract price for the same subgroup. The total gross amount of inventory which is eligible for NRV write-down amounts at 31 December 2010 to k€16,857 (31 December 2009: k€25,687). The NRV provision at 31 December 2010 amounts to k€2,205 (31 December 2009: k€3,133).

Write-downs are also recorded for obsolete, i.e. slow-moving, inventory. This write-down amounted to k€1,649 at 31 December 2010 (31 December 2009: k€1,192).

The write-down resulting from the NRV test is recorded in the income statement as a change in inventory. The write-down for slow-moving stock is recorded as write-off in the income statement and is as such included in the calculation of EBITDA.

The decrease in inventory value is fully explained by the lower production volumes in both Belgium and the UK. At the British subsidiary the inventory volume at 31 December 2010 amounted to 77,406 tons, which is 3,209 tons less than at 31 December 2009. In Belgium the inventory volume decreased to 59,861 tons at 31 December 2010, 23,449 tons less than at 31 December 2009 (83,310 tons).

Inventories of the potato segment

A specific characteristic of the potato sector is that fresh raw materials are also held in inventory, unlike in the deep-frozen vegetable sector. At 31 December 2010, the potato division had k€5,667 of fresh potatoes, additives and frying oils in stock (31 December 2009: k€3,455). The increase of this inventory value is on the one hand related to the higher inventory volume (+43%) of fresh potatoes and on the other hand the higher average inventory price (+24%) of potatoes.

The inventory of consumables consists mainly of foil and cardboard packaging in an amount of k€4,171 (31 December 2009: k€3,895). According to IFRS, finished products are valued at 'full cost', giving an inventory value of k€17,462 (31 December 2009: k€21,701). The decrease in the inventory value of processed frozen potato products is explained by the lower volume per 31 December 2010 (29,235 tons compared with 43,242 tons at yearend 2009).

In 2010 a write-off of k€236 (31 December 2009: k€300) was recorded for slow-moving inventory and the provision set up following the NRV test amounted to k€112 (31 December 2009: k€123). The total gross value eligible for the NRV write-down amounted to k€1,449 at 31 December 2010 (31 December 2009: k€1,823).

At 31 December 2010 and 31 December 2009, there were no pledges on inventories.

6.6 LONG-TERM RECEIVABLES

Long-term receivables (in thousands of €)	31/12/2010	31/12/2009
Trade receivables	0	0
Trade receivables	99	99
Valuation allowances on trade receivables	-99	-99
Other receivables	143	118
Other receivables	186	161
Valuation allowances on other receivables	-43	-43
Total	143	118

Long-term receivables mainly consist of cash guarantees and bails. The outstanding amount of long-term receivables slighty increased compared to previous year and consists of a prepayment to SOB (k€51), cash guarantees and bails (k€92), as well as a receivable against Tomates d'Aquitaine SAS of k€43, which was fully written off in 2008.

Valuation allowances on long-term receivables (in thousands of €) 31/12/2010 31/12/2009 Trade receivables > 1 year Other receivables > 1 year Trade receivables > 1 year Other receivables > 1 year Balance at the end of the preceding period -99 -43 -99 -43 Addition Non-recoverable amounts Reversal Translation differences Changes in the consolidation scope Balance at the end of the period -99 -43 -99 -43

6.7 Fixed assets held for sale

Fixed assets held for sale

(in thousands of €)	31/12/2010	31/12/2009
Balance at the end of the preceding period	0	102
Increase
Decrease		-111
Translation differences		9
Balance at the end of the period	0	0

IFRS requires fixed assets to be transferred to this heading when the Board of Directors has passed a resolution to sell assets and sufficient certainty exists that the assets in question will be effectively disposed off within a foreseeable period (generally 1 year).

6.8 DEFERRED TAX ASSETS AND LIABILITIES

Deferred taxes (net carrying amount)

(in thousands of €)		31/12/2010		31/12/2009
	Deferred tax assets	Deferred tax liabilities	Deferred tax assets	Deferred tax liabilities
Balance at the end of the preceding period	0	29,406	997	41,287
Increase/decrease (-) via income statement	-1,063	-3,100	9,757	-1,024
Increase/decrease (-) via equity	12,234	12,234	1,388	1,388
New consolidations
Deconsolidations
Translation differences	-5	55	92	-11
Set-off of assets and liabilities	-11,166	-11,166	-12,234	-12,234
Balance at the end of the period	0	27,429	0	29,406

Deferred taxes (allocation)

(in thousands of €)		31/12/2010		31/12/2009
	Deferred tax assets	Deferred tax liabilities	Deferred tax assets	Deferred tax liabilities
Intangible and tangible fixed assets	9,361	35,767	10,332	39,223
Financial fixed assets (derivatives)	202		560
Bond loan
Inventories	162	1,762		2,417
Trade and other receivables		709
Provisions	100
Other financial debts		357
Fiscal losses	1,388		1,388
Total deferred taxes related to temporary differences	11,213	38,595	12,280	41,640
Unrecognised deferred tax assets in respect of deductible temporary differences	-47		-46
Set-off of assets and liabilities	-11,166	-11,166	-12,234	-12,234
Net deferred tax assets / liabilities	0	27,429	0	29,409

The changes in deferred tax liabilities (k€-1,976) originate mainly in the decrease of deferred tax liabilities relating to intangible and tangible fixed assets (k€-2,485) as a result of the different treatment between local and IFRS accounting rules. This decrease was partially offset by the booking of a deferred tax liability in the United Kingdom (k€709) as a result of the different treatment between local and IFRS accounting rules related to the compensation received for the partial vacation of part of the site in King's Lynn.

At 31 December 2010 the Group had not recognized any other deferred tax assets on deductible temporary differences on the basis of its budget forecasts.

No deferred tax assets are recognized on the tax losses carried forwards as mentioned below. The following table sets out the deductible elements for which no deferred taxes have been recognized, but against which future taxable profits can be offset. The figures given are gross amounts.

Unrecognised deferred tax assets

(in thousands of €)	31/12/2010	31/12/2009
Deductible temporary differences	140	137
Losses carried forward and other recoverable tax amounts	10,631	10,121
Total	10,771	10,258

There is no limitation in time on the above-mentioned unrecognized tax assets.

6.9 TRADE AND OTHER RECEIVABLES

Trade and other receivables

(in thousands of €)	31/12/2010	31/12/2009
Trade receivables	51,182	38,643
Trade receivables	51,384	38,641
Doubtful trade receivables	894	929
Valuation allowances on trade receivables	-1,096	-927
Other receivables	13,198	9,664
Other receivables	9,286	6,612
Valuation allowances on other receivables
Prepaid expenses and accrued income	3,912	3,052
Total	64,380	48,307

In total, short-term trade and other receivables have increased by k€16,073. The increase is due mainly to the higher sales and the increase of the heading 'other receivables', more specifically due to the increase of VAT recoverable by k€2,828.

Deferred charges mainly relate to insurance premiums, expenses related to maintenance contracts, rent, prepayments of IT costs and cliché costs for packaging.

Aging analysis of trade receivables

An analysis is provided below, which shows the aging of the invoiced sales and of the credits extended to customers, including impairments on these amounts.

Aging of trade receivables

(in thousands of €)			31/12/2010			31/12/2009
	Gross	Valuation allowances	Net	Gross	Valuation allowances	Net
Not overdue	39,825		39,825	30,664		30,665
Overdue less than 30 days	7,787		7,787	6,097		6,097
Overdue between 30 and 60 days	2,020	-4	2,016	1,204		1,204
Overdue more than 60 days	2,646	-1,092	1,554	1,605	-927	678
Net book value of trade receivables	52,278	-1,096	51,182	39,569	-927	38,643

At the end of December 2010 the valuation allowance on trade and other receivables amounted to k€ 1,096 (31 December 2009: k€ 927). No valuation allowances are taken by the Group for overdue amounts where collection is still deemed probable, for example because outstanding amounts are recoverable from the tax authorities or because the Group holds sufficient security. The table below gives the movements of valuation allowances on trade and other receivables.

Valuation allowances on

receivables < 1 year (in thousands of €)		31/12/2010		31/12/2009
	Trade receivables < 1 year	Other receivables < 1 year	Trade receivables < 1 year	Other receivables < 1 year
Balance at the end of the preceding period	-927	0	-903	0
Addition	-276		-100
Non-recoverable amounts	30		76
Reversal/use	77
Translation differences
Changes in the consolidation scope
Balance at the end of the period	-1,096	0	-927	0

Management believes that the fair value does not differ significantly from the carrying value.

Factoring

The Group has been making use of factoring for the Belgian group companies since November 2007 and as from 2009 onwards, there was a partial off-balance sheet financing of the receivables of the British affiliate PinguinLutosa Foods UK Ltd..

In this way the Group immediately and definitively receives 90% of the value of sold receivables. The balance is received upon payment by the customer to the financial institution. This is a partial off-balance-sheet financing of the receivables of the Belgian and British group companies. This sale is with partial recourse. In this way no credit risk remains in respect of the sold receivables other than the credit risk on 10% of the value of the sold receivables.

The financial institution purchasing the receivable charges an interest cost for the period between the sale of the receivables and final payment by the customer. This margin is substantially lower than the prevailing margin on working capital credit lines with financial institutions. The late payment risk retained by the Group is limited in time. The continuing involvement of the Group in the transferred receivables is limited in this way to 10% of the value of the receivables and the maximum amount of the late payment risk.

The portion of the sold receivables (k€89,319 at 31 December 2010 - k€72,633 at 31 December 2009) which remains on the balance sheet amounts to k€43,502 at 31 December 2010 (31 December 2009: k€31,383). This includes an amount for the maximum risk of late payment at 31 December 2010 of k€606 (at 31 December 2009: k€394). The corresponding financial obligation amounts to k€606 (at 31 December 2009: k€394).

The Group's exposure to credit, exchange rate and interest-rate risks is further described in greater detail in note "6.20. Risk Management Policy".

For the factoring there is no pledge mandate.

6.10 CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of liquid assets held by the Group in the form of cash and of deposit accounts with original maturities of no more than three months. The carrying value of these assets is approximately equivalent to their fair value.

Cash and cash equivalents

Total	54,990	37,988
Short-term bank deposits	10,000
Banks	44,990	37,988
(in thousands of €)	31/12/2010	31/12/2009

6.11 ISSUED CAPITAL

Management aims to provide a solid capital base. This capital base allows a large confidence of investors, suppliers and the market to establish and to have a solid base for the future development of the Group. Management aims to obtain financial stability in both the short and long-term. This strong policy guarantees a financially strong Group with solid financial ratios, which lead to a maximisation of the value of the share of the Group. There were no changes in capital management during 2010. The Group is not exposed to external requirements with regard to capital.

	31/12/2009
	101,028
10,000
-15
111,013	101,028
31/12/2010	31/12/2009
10,713,733	10,713,733
856,898
11,570,631	10,713,733
31/12/2010	31/12/2009
60,000	60,000
60,000	60,000
	31/12/2010 101,028

The Board of Directors is authorized, for a period of 5 years from the publication of the deed in the annexes to the Belgian Official Journal (7 December 2007), to increase the capital of the company in one or more instalments up to a maximum amount of €60 million.

Financial year 1 January 2010 – 31 December 2010

On 12 October 2010 the Board of Directors of PinguinLutosa decided to undertake a capital increase within the authorized capital and with suspension of the right of pre-emption, in favour of Union Fermière Morbihannaise SCA (UFM). The capital increase of k€10,000 took place, subject to subscription and full payment by contribution in cash, that was established on 28 October 2010. Prior to the above decision, the capital amounted to k€101,028. The capital increase brought the capital to k€111,013. The capital of the Group consisted at 31 December 2010 of 11,570,631 shares without nominal value. In accordance with IFRS standards, the costs of the capital increase (k€15) were deducted from capital at 31 December 2010.

There were no other changes in issued capital during 2010.

Financial year 1 January 2009 – 31 December 2009

There were no changes in issued capital during 2009.

6.12 OWN SHARES

As at 31 December 2010	11,570,631	11,570,631	0	0	11,570,631
Purchase/sale of treasury shares
Capital increase	856,898	856,898			856,898
As at 1 January 2010	10,713,733	10,713,733	0	0	10,713,733
			Held by parent	Held by subsidiaries
	Number of ordinary shares	Number of shares issued (a)	Number of treasury shares (b)		Total number of shares out standing (a) - (b)

Financial year 1 January 2010 – 31 December 2010

The company did not trade any of its own shares in the financial year ending on 31 December 2010. It held none of its own shares at that date.

6.13 DIVIDENDS

No dividends were declared during the past three financial years. The directors propose that no dividends be declared in respect of the current year.

6.14 STOCK OPTION AND WARRANT PLANS

Option plans

There are currently no option plans outstanding for members of the Management Committee or senior management.

Warrant plans

At this moment, there are no share option plans or warrant plans for employees, managers or members of the Management Committee.

Financial year 1 January 2009 – 31 December 2009

The company did not trade any of its own shares in the financial year ending on 31 December 2009. It held none of its own shares at that date.

6.15 NON-CONTROLLING INTERESTS

Non-controlling interests

(in thousands of €)	31/12/2010	31/12/2009
Balance at the end of the preceding period	2,019	1,696
Increase/decrease (-) in ownership
Share of net profit of subsidiaries	-58	318
Dividend pay-out
Capital increases
Changes in the consolidation scope
Translation differences
Other	-1	5
Balance at the end of the period	1,960	2,019

As last year, the Group has a 99.99% shareholding in Pinguin Langemark NV, a 98.12% shareholding in PinguinLutosa América Latina Ltda, a 99.90% shareholding in PinguinLutosa Deutschland Gmbh, a 99.80% shareholding in M.A.C. Sarl, a 90.00% shareholding in Lutosa España SA and a 52.00% shareholding in Pinguin Aquitaine SAS. Pinguin Aquitaine SAS reported a net loss of k€-120 for the period to 31 December 2010. 48.00% of this result has therefore been included under the heading 'noncontrolling interests'.

6.16 PROVISIONS

Provisions (in thousands of €)	Provisions for pensions and similar rights	Provisions for other liabilities and charges	Total
Balance at the beginning of the preceding period	55	199	254
Translation differences		13	13
Additional provisions	16	1,049	1,065
Reversal of unutilized provisions
Provisions utilized during the year	-14	-9	-23
Changes due to the passage of time and change in the discount rate applied
Balance at the end of the preceding period	57	1,252	1,309
Balance at the end of the preceding period	57	1,252	1,309
Translation differences		44	44
Additional provisions		300	300
Reversal of unutilized provisions
Provisions utilized during the year	-31	-339	-370
Changes due to the passage of time and change in the discount rate applied
Balance at the end of the period	26	1,257	1,283

The provisions at 31 December 2010 decreased by k€26 compared to the situation as per 31 December 2009.

At 31 December 2010 the provision for 'pensions and similar rights' relates to an agreed early retirement pension settlement in an amount of k€26 (31 December 2009: k€57).

The 'provisions for other liabilities and charges' remained stable compared to prior year: on the one hand a provision for redundancies which was already recorded in PinguinLutosa Foods UK Ltd. has been utilized (k€332), whereas in Pinguin Aquitaine SAS and on the other hand in Pinguin Aquitaine SAS, an additional provision of k€300 was recorded related to the pending dispute related to cleaning and repair work on a property and the waterpurification installation (total provision of k€550). Similar to last year, the 'provisions for other liabilites and charges' contain a provision for soil decontamination (k€32), a provision related to a subsidy matter in Pinguin Aquitaine SAS (k€100), a provision for a claim related to clearing and repair costs of the leased site at Easton (k€350) and a provision for a claim being pressed by an employee in the United Kingdom (k€225).

For further information concerning pending disputes we refer to note "7.2. Pending Disputes".

6.17 PENSION OBLIGATIONS

Defined contribution plans

The Group's pension plans provide for the payment of clearly determined amounts to pension institutions. These employer's contributions are charged against income in the year to which they relate. Since 1 January 2004 Belgian legislation has required a minimum return to be guaranteed on contributions paid into a defined contribution plan. Given that this minimum return is guaranteed essentially by the insurance institution, the pension cost is the same as the contributions due by the employer.

During 2010 the Group made payments of k€340 under defined contribution schemes (2009 financial year: k€364).

Defined benefit plans

There are no defined benefit plans within the Group.

6.18 INTEREST-BEARING LIABILITIES

This note provides information on the contractual conditions governing the Group's interest-bearing liabilities. It covers the financial debts. The present note gives an overview of the longterm liabilities and those maturing within the period. This note does not cover the MTM values of the financial instruments.

Financial debts due after one year fell from €68.9 million at 31 December 2009 to €56.0 million at 31 December 2010, while financial debts due within one year slightly rose from €59.6 million at 31 December 2009 to €65.2 million at 31 December 2010. These movements are explained by the contractual repayments of the investment credits of the club deal and by a slight increase of the short-term portion of working capital financing. No significant new loans or leasings were concluded.

The interest-bearing liabilities (short-term and long-term) thus fall from €128.5 million at 31 December 2009 to €121.2 million at 31 December 2010.

The interest-bearing liabilities at 31 December 2010 can be broken down as follows:

Interest-bearing liabilities

at 31 December 2010 (in thousands of €)	Due within one year	Due between 1 and 5 years	Due after 5 years	Total
Interest-bearing liabilities > 1 year		54,326	1,705	56,031
- S ubordinated bond loan
- Finance leases		476		476
- Bank loans (credit institutions)		53,055		53,055
- Other financial debts		795	1,705	2,500
Interest-bearing liabilities < 1 year	65,161			65,161
- S ubordinated bond loan
- Finance leases	629			629
- Bank loans (credit institutions): debts > 1 year due within current year	12,781			12,781
- Bank loans (credit institutions)	51,516			51,516
- Other financial debts	235			235
Total	65,161	54,326	1,705	121,192

Interest-bearing liabilities

Total	6,004	115,188	121,192
(in thousands of €)	Fixed	Variable	Total

Interest-bearing liabilities

Total	119,297	1,895	121,192
(in thousands of €)	Secured	Non-secured	Total

The interest-bearing liabilities at 31 December 2009 can be broken down as follows:

Interest-bearing liabilities at

31 December 2010 (in thousands of €)	Due within one year	Due between 1 and 5 years	Due after 5 years	Total
Interest-bearing liabilities > 1 year		67,014	1,903	68,917
- S ubordinated bond loan
- Finance leases		1,076		1,076
- Bank loans (credit institutions)		65,105		65,105
- Other financial debts		833	1,903	2,736

Interest-bearing liabilities < 1 year	59,618			59,618
- S ubordinated bond loan
- Finance leases	1,186			1,186
- Bank loans (credit institutions): debts > 1 year due within current year	10,196			10,196
- Bank loans (credit institutions)	48,009			48,009
- Other financial debts	227			227
Total	59,618	67,014	1,903	128,535
Interest-bearing liabilities (in thousands of €)		Fixed	Variable	Total
Total		7,530	121,005	128,535
Interest-bearing liabilities (in thousands of €)		Secured	Non-secured	Total
Total		126,652	1,883	128,535

Bank loans

The Group's short-term interest-bearing liabilities were drawn down mainly in the form of fixed-term advances at fixed margins over floating (Euribor) rates. Short-term bank loans rose from €58.2 million to €64.3 million at 31 December 2010.

The evolution of short-term bank loans recorded in the financial statements is the situation at a particular point in time. Shortterm bank debt varies in function of inventories, the factoring of receivables via an invoice discounting facility, and available cash. In addition, capital repayments are due on investment credit used in 2008, 2009 and 2010 (capex line from the club deal), leading to an increase in the item 'credit institutions: debts > 1 year due within current year'.

All interest-bearing liabilities are expressed in euros or pounds sterling. The total interest-bearing liabilities in pounds sterling amounted at 31 December 2010 to £13.1 million (31 December 2009: £19.8 million). This decrease can be explained by the normal repayment of the credits from the club deal and the financial leasing.

All interest-bearing liabilities are concluded at market conditions. The average interest rate for outstanding debts with financial institutions amounted at 31 December 2010 to 4.1% (at 31 December 2009: 4.1%).

For the loans outstanding at 31 December 2009 and 31 December 2010, no defaults or violations were established with regard to redemption payments and the provisions relating to principal and interest. The total amount of such loans with anomalies at 31 December 2009 and 31 December 2010 is nil. For this reason no regularisation of any defaults was required prior to the publication date of the approved annual accounts.

We refer to note "7.3. Commitments" for further information on bank covenants and potential breaches on covenants and the rights and commitments not included in the balance sheet.

Finance leases

Finance leases (in thousands of €)		Minimum lease payments		Present value minimum lease payments
	31/12/2010	31/12/2009	31/12/2010	31/12/2009
Due within one year	608	1,245	629	1,186
Due between 1 and 5 years	638	1,109	476	1,076
Due after 5 years
Total	1,246	2,354	1,105	2,262

The largest interest-bearing liabilities are the finance lease agreements for the buildings, plant, machinery and equipment at Pinguin Aquitaine SAS and plant, machinery and equipment at PinguinLutosa Foods UK Ltd.

The average repayment term at Pinguin Aquitaine SAS is 17 months. The average effective interest rate at 31 December 2010 was 4.2% (31 December 2009: 4.3%). Total outstanding debts at Pinguin Aquitaine SAS amounted at 31 December 2010 to k€562 (31 December 2009: k€1,368).

The average repayment term at PinguinLutosa Foods UK Ltd. is 23 months. The average effective interest rate at 31 December 2010 was 5.8% (31 December 2009: 6.0%). Total outstanding debts at PinguinLutosa Foods UK Ltd. amounted at 31 December 2010 to k€447 (31 December 2009: k€696).

Other financial debts

The other financial debts consist on the one hand of a loan of k€150 from the Agence d'Eau to Pinguin Aquitaine SAS (31 December 2009: k€229) and on the other hand of a deferred payment following the sale and rent back transaction relating to the property of the potato division ('Lutosa Group') in an amount of k€2,585 (31 December 2009: k€2,733). The fall in other financial debts reflects mainly the normal contractual repayments and the reduction of the deferred payment due to the sale and rent back transaction.

6.19 TRADE AND OTHER PAYABLES (SHORT-TERM)

Short-term trade and other payables

(in thousands of €)	31/12/2010	31/12/2009
Trade payables and accrued expenses	116,679	99,429
Tax payable	6,763	6,446
Remuneration and social security payable	6,876	7,664
Advances received	61	169
Other amounts payable	505	350
Deferred income	141	377
Total	116,679	114,435

In all, short-term trade and other payables rose by k€2,244 compared to 31 December 2009.

The increase in trade payables (k€17,250) is mainly attributable to the potato division, which was confronted with potato prices that increased significantly and the Belgian potato and deep-frozen vegetable division where longer payment terms have been agreed with several suppliers.

The reduction in remuneration and social security payable (k€-788) is caused by a decrease in social security payables (k€-492).

The other amounts payable and tax payables remained stable compared to prior year.

6.20 RISK MANAGEMENT POLICY

In exercising its business activity, the Group is exposed to market risks (currency, interest-rate and other risks) and to credit and liquidity risks. Derivatives are used to reduce the risk attached to exchange rate and interest-rate fluctuations. The derivatives used consist primarily of 'over-the-counter' financial instruments, in particular option contracts and interest-rate swaps concluded with first-class banks. Not being listed on an active market, these derivatives are valued on the basis of a valuation model. It is Group policy not to undertake speculative transactions. 'Hedge accounting' under the strict application conditions of the IFRS is not applied at this moment.

This note places the users of the Group's financial statements in a position to judge the nature and extent of the abovementioned risks arising out of financial instruments, to which the Group is exposed at the reporting date. It also sets out the Group's objectives, principles and procedures for managing risk and the methods used for measuring this risk. Further quantitative information is provided throughout these consolidated financial statements.

• Market risk: foreign exchange risks

The Group concludes foreign exchange contracts that entitle it in each case to buy (forward purchases) or sell (forward sales) a certain quantity of foreign currency. The Group also concludes agreements giving it the right, but not the obligation, to sell (put option) a specified quantity of foreign currency (GBP) at an agreed price during a specified period or at a specified date. The option-holder pays the seller a premium as remuneration for the risk during the life of the agreement. Combinations of call and put options are used in order to keep hedging costs as low as possible. These agreements are concluded in order to minimize the Group's foreign exchange risk, mainly in respect of a significant portion of the activities undertaken with countries outside the Eurozone (the chief example being the UK).

• Market risk: interest-rate risk

For managing interest-rate risk the Group makes limited use of financial instruments with a view to reduce the impact of any interest-rate rises. These instruments match the way the company finances its credit needs with short-term fixed-rate borrowings. An interest-rate swap involves swapping interest-rate conditions during the period, or part of the period of a borrowing. An interest-rate cap protects the holder of this financial instrument against interest rates rising above a predetermined level, whilst an interest-rate floor protects against interest rates falling below a pre-determined level.

• Credit risk

Credit risk is the risk of a counterparty or its bank being unable to fulfil its contractual obligations. The Group reduces this risk by means of an active debtor policy including such steps as formulating payment conditions, formulating collection procedures, credit insurance and setting internal limits. We refer also to note "6.9. Trade and other receivables" for further information on the factoring agreements.

• Liquidity risk

Liquidity risk is the risk of having insufficient resources in order to fulfil direct obligations, which are settled in cash or other financial assets. The Group's approach to liquidity is to ensure, as far as possible, that sufficient liquidity is available at all times to meet liabilities as these fall due, under both normal and abnormal circumstances, without exposing itself to unacceptable losses or damaging the Group's reputation. We refer as well to note "7.3. Commitments" for further information on bank covenants.

Within the Group the Board of Directors carries total responsibility for supervising the Group's risk management structure. Financial management describes and names the risks and is tasked with developing and controlling the Group's risk management policy. Financial management reports on a regular basis to the Board of Directors.

The first task of the Group's risk management policy is to identify the risks to which the Group is exposed. Analysis of these risks then leads to an appropriate structure of risk limitation and control. The risk management policy and risk management system are regularly reviewed to reflect changes in market conditions and in the Group's activities. The Group also seeks to develop a disciplined, constructive and controlled environment by means of training, standards and procedures, in such a way that every employee knows his role, obligations and responsibilities.

The Board of Directors assesses the application of the risk management policy and the prescribed procedures and reviews the appropriateness of the risk management structure in relation to the risks to which the Group is exposed.

A number of risks are managed with the help of derivatives. The Group limits itself here to forward contracts and interest-rate swaps (IRS).

1. Market risk

The market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will influence Group income or the value of its financial instruments. The objective is to control and manage this market risk within the limits of acceptable parameters, whilst optimizing the 'return on risk'.

The Group buys and sells derivatives in the normal course of business, and also uses financial instruments in order to manage the market risk. All these transactions are carried out under the guidelines set by the Audit Committee. The Group does not, however, use 'hedge accounting'.

In its application of IAS 39 "Financial instruments" the Group has classified the financial instruments used to cover its interestrate risk as economic hedges that do not fulfill the requirements for hedge accounting. They are therefore valued at fair value with changes in fair value, as a result of the effect of the interest-rate difference, recognized in the income statement..

1.a.1. Foreign exchange risk

The foreign exchange risk relates to possible variations in the value of financial instruments as a result of exchange rate fluctuations. The Group is exposed to exchange risks from the fact that a considerable portion of its activities (buying and selling) are undertaken outside the Eurozone, mainly in pounds sterling and US dollars. The derivatives are intended to hedge the Group's exposure to currency risks in GBP and the USD (see note "1.c. Foreign exchange risk and interest-rate risk: financial instruments (derivatives)").

Outstanding foreign currency receivables and liabilities at balance sheet date at Group level break down as follows:

Outstanding amounts in foreign currencies exposed to foreign

exchange risk (in thousands of €)	31/12/2010	31/12/2009
Amounts receivable
GBP (in EUR terms)	20,390	6,737
USD (in EUR terms)	1,318	1,464
Liabilities
GBP (in EUR terms)	2,991	933
USD (in EUR terms)	490	203

These amounts relate to both receivables and liabilities from/to third parties and to intra-Group receivables and liabilities which represent a foreign exchange risk at balance sheet date. In other words these amounts consist only of receivables and payables in a currency other than the functional currency of the entity holding them.

The receivables in GBP have increased due to an increase of the open position of PinguinLutosa NV with PinguinLutosa Foods UK Ltd..

The Group realizes a substantial portion of its sales outside the Eurozone, mainly in the United Kingdom.

Deep-frozen vegetable division

The sales of the deep-frozen vegetable division are directed primarily at the Eurozone (approx. 51% of 2010 sales; approx. 48% of 2009 sales). In addition, the deep-frozen vegetable division realizes around 44% of its sales in the UK, whereas only 5% is exported to the rest of the world.

A portion of the working capital needs of PinguinLutosa Foods UK Ltd. are financed under the club deal in GBP by loans made directly to PinguinLutosa Foods UK Ltd.. The remaining needs are financed by the parent company. In the past the entire needs were financed by the parent company.

As some of the vegetables that are processed at PinguinLutosa Foods UK Ltd for the English market are supplied from Belgium, invoicing within PinguinLutosa NV is in GBP. The receivables in GBP are converted into EUR. On the receivables arising in this way an accounting loss must be recorded in the event of a loss of value of the GBP.

Potato division

The sales of the potato division are directed primarily at the Eurozone (approx. 64% of 2010 sales; approx. 70% of 2009 sales). In addition, the potato division realizes around 15% of its sales in the UK, and another 21% is exported to the rest of the world. Given that prices in the UK are set in GBP, a reduction in value of the GBP negatively impacts net profit. The cash flows from ongoing sales to the UK in GBP are partially hedged by forward contracts. The GBP is not systematically hedged, but rather on an ad hoc basis depending on contract size and market circumstances. Sales outside Europe (around 21%) are invoiced mainly in USD and in JPY. These currencies are not systematically hedged, but rather on an ad hoc basis depending on contract size and market circumstances. The overall portion of sales undertaken outside the Eurozone can be expected to rise in the future.

The impact of the GBP on the Group's results is to be found at two levels: transaction risk and translation risk. An additional impact is that of the sales offices that report in foreign currencies (Pinguin Hong Kong Ltd., Lutosa UK Ltd., Lutosa América Latina Ltda, PinguinLutosa Japan K.K. and PinguinLutosa Foods Shanghai Ltd.). This risk is situated at the translation risk level.

a) Transaction risk with respect to outstanding receivables and liabilities

The receivables and liabilities in GBP can, upon payment in EUR, give rise to a realized gain or loss depending on whether the daily exchange rate at the time of receipt and payment differs from the exchange rate at the time the receivable or payable is recorded.

We point out that a transaction risk also affects outstanding receivables and liabilities in USD.

b) Translation risk in relation to the income statement

This translational risk relates mainly to the inclusion of the figures of PinguinLutosa Foods UK Ltd., but also applies to the sales offices that report in foreign currencies (Pinguin Hong Kong Ltd., Lutosa UK Ltd., Lutosa América Latina Ltda, PinguinLutosa Japan K.K. and PinguinLutosa Foods Shanghai Ltd.) (see note "7.1. Subsidiaries").

The impact of the GBP exchange rate concerns primarily the recognition of the statement of financial position and the income statement of PinguinLutosa Foods UK Ltd. The functional currency of PinguinLutosa Foods UK Ltd. is the pound sterling. This means that, in the case of a net profit of for example GBP 1,000 (over a certain period), an average rise/fall of the GBP against the EUR of for example 10% (over the same period) will also increase/decrease the EUR net profit by 10%.

c) Translation risk in relation to equity

In addition the exchange rate also affects the reserves and the value of the participating interest that PinguinLutosa NV holds in the capital of PinguinLutosa Foods UK and the sales offices Pinguin Hong Kong Ltd., Lutosa UK Ltd., Lutosa América Latina Ltda, PinguinLutosa Japan K.K. and PinguinLutosa Foods Shanghai Ltd. Under the consolidation rules, capital and reserves are converted at the historical exchange rate. Whenever the exchange rate changes, the difference between the closing rate at a particular date and the historical rate will be recorded as a translation difference under "equity".

1.a.2. Foreign exchange sensitivity

A sensitivity percentage of 10% is taken in determining the foreign exchange risk. In reality the fluctuations, as in 2009, can be greater than 10%, which can change the sensitivity proportionally.

Foreign exchange sensitivity: 2010

	Closing rate 31 December 2010	Average rate 2010	Possible closing rate 31 December 2010	Average rate 2010	Possible exchange rate volatility expressed in %
1 euro =
Pound sterling	0.86	0.86	0.77 - 0.94	0.77 - 0.94	10%
US dollar	1.33	1.32	1.19 - 1.46	1.19 - 1.46	10%

Foreign exchange sensitivity:	2009
	Closing rate 31 December 2009	Average rate 2009	Possible closing rate 31 December 2009	Average rate 2009	Possible exchange rate volatility expressed in %
1 euro =
Pound sterling	0.90	0.89	0.81 - 0.99	0.80 - 0.98	10%
US dollar	1.43	1.39	1.29 - 1.58	1.25 - 1.53	10%

The sensitivity analysis is applied only to outstanding monetary business in foreign currencies. It covers both external loans and intra-Group loans and receivables in foreign currency, as well as trade receivables and liabilities, in so far as the foreign currency differs from the functional currency of the entity holding them.

a) Transaction risk with respect to outstanding receivables and payables

Based on the average volatility of the GBP and USD against the EUR during the past financial year, we have made a reasonable estimate, as follows, of the effect of a potential variation of the GBP and USD exchange rates against the EUR:

• If the EUR had risen/fallen by 10% against the GBP, and all other variables remaining constant, the result on the open position would have been €1.7 million lower/higher given the net receivable position in GBP at 31 December 2010 (at 31 December 2009: €0.6 million lower/higher given the net receivable position in GBP)
• If the EUR had risen/fallen by 10% against the USD, and all other variables remaining constant, the result on the open position would have been €0.1 million lower/higher given the net receivable position in USD at 31 December 2010 (at 31 December 2009: €0.1 million lower/higher given the net receivable position in USD)

b) Translation risk in relation to income statement

24% of the Group's sales are realized by PinguinLutosa Foods UK Ltd. (at 31 December 2009: 25%), which operates in pounds sterling. These results are converted into the Group's functional currency, which is the EUR. Based on an analysis of exchange rate developments over the past financial year, we have made a reasonable estimate of an effect of a potential variation in the GBP against the EUR.

• If the EUR had risen/fallen by 10% against the GBP, and all other variables remaining constant, the net result would have been €0.4 million lower/higher at 31 December 2010 (at 31 December 2009: €0.2 million lower/higher).

The impact of exchange rate fluctuations in respect of the sales offices that report in foreign currencies (Pinguin Hong Kong Ltd., Lutosa UK Ltd., Lutosa América Latina Ltda, PinguinLutosa Japan K.K. and PinguinLutosa Foods Shanghai Ltd.) on the Group result at 31 December 2010 is nil (at 31 December 2009: nil).

c) Translation risk in relation to equity

If the EUR had risen/fallen by 10% against the GBP, and all other variables remaining constant, the translation differences in equity would have been €1.7 million lower/higher at 31 December 2010 (at 31 December 2009: €1.4 million lower/higher).

The impact of exchange rate fluctuations in respect of the sales offices that report in foreign currencies (Pinguin Hong Kong Ltd., Lutosa UK Ltd., Lutosa América Latina Ltda, PinguinLutosa Japan K.K. and PinguinLutosa Foods Shanghai Ltd.) on the Group's shareholders' equity at 31 December 2010 is €0.03 million (at 31 December 2009: €0.03 million).

1.b.1 Interest-rate risk

The Group has credit outstanding in GBP and EUR. The distribution by currency is given below:

Financial liabilities		31/12/2010	31/12/2009
	In thousands of €	Interest rate	In thousands of €	Interest rate
Floating interest rate
EUR	100,888	3.08%	101,448	2.34%
GBP (in EUR terms)	14,894	2.54%	21,205	2.50%
Fixed interest rate
EUR	5,557	4.64%	6,833	4.97%
GBP (in EUR terms)	447	5.77%	697	5.95%
Total	121,786		130,183

At 31 December 2010, 95.1% of the outstanding financial debt of the Group was at variable interest rates (at 31 December 2009: 94.22%). Under the club deal the Group has opted to finance itself mainly at floating interest rates (straight loans). To hedge against interest-rate changes, the Group proceeded as from 2008 onwards to conclude a number of IRS contracts. These contracts hedge 67% of the acquisition financing.

1.b.2 Interest-rate risk: interest-rate sensitivity

Had interest rates in GBP (Libor) risen/fallen by 50 basis points, and with all other parameters remaining constant, this would have had a negative/positive impact on the financial results, for the credits with a floating interest rate, of €0.1 million for the period to 31 December 2010 (€0.1 million for the period to 31 December 2009).

Had interest rates in EUR (Euribor) risen/fallen by 50 basis points, and with all other parameters remaining constant, this would have had a negative/positive impact on the financial results, for the EUR credits with a floating interest rate, of €0.5 million for the period to 31 December 2010 (€0.5 million for the period to 31 December 2009).

Despite the Group's intention to reduce the level of indebtedness, and hence the sensitivity of net result to interest-rate fluctuations, and despite the hedging strategy on the basis of bank derivatives, it cannot be excluded that the Group's net result will in future be subject to interest-rate fluctuations.

1.b.3 Interest-rate risk: maturity of financial instruments

The table below gives an overview of the average effective interest rates and remaining terms at balance sheet date for the different types of financial instruments:

Remaining terms of financial instruments

(in thousands of €) 31/12/2010

	Category of instruments	Average effective interest rate %	Total carrying value	< 1 year	1- 5 years	> 5 years
Instruments with fixed interest rates			60,995	55,307	3,983	1,705
Other financial assets	FaAFS
Held-to-maturity investments	Htm
Cash and cash equivalents	L&R		54,990	54,990
Guaranteed bank loans	FLmaAC	5.35%	3,460	100	3,360
Financial lease obligations	n/a	6.03%	1,105	629	476
Unguaranteed bank facilities	FLmaAC
Liabilities to credit institutions	FLmaAC
Other guaranteed financial liabilities	FLmaAC	0.00%	150	79	71
Other non-guaranteed financial liabilities	FLmaAC	3.02%	1,289	-492	76	1,705

Instruments with variable interest rates			115,188	64,845	50,343	0
Guaranteed GBP bank loan	FLmaAC	4.59%	14,556	7,598	6,958
Guaranteed EUR bank loan	FLmaAC	4.00%	100,026	56,641	43,385
Other guaranteed loans	FLmaAC
Other unguaranteed loans	FLmaAC	0.98%	606	606

	Category of instruments
L&R: L	oans and receivables
FaHT:	Financial asset Held for Trading
FaAFS:	Available-For-Sale Financial assets
Htm: H	eld-to-maturity investments
FLmaAC:	Financial Liabilities measured at amortised cost
FlHT:	Financial Liabilities Held for Trading

Remaining terms of financial instruments

(in thousands of €) 31/12/2009

		Category of instruments	Average effective interest rate %	Total carrying value	< 1 year	1- 5 years	> 5 years
	Instruments with fixed interest rates			45,519	39,079	4,537	1,903
	Other financial assets	FaAFS
	Held-to-maturity investments	Htm
	Cash and cash equivalents	L&R		37,988	37,988
	Guaranteed bank loans	FLmaAC	5.71%	3,548	92	3,456
	Financial lease obligations	n/a	5.83%	2,262	1,186	1,076
	Unguaranteed bank facilities	FLmaAC
	Liabilities to credit institutions	FLmaAC
	Other guaranteed financial liabilities	FLmaAC	0.00%	230	80	150
	Other non-guaranteed financial liabilities	FLmaAC	3.02%	1,491	-267	-145	1,903
	Instruments with variable interest rates			121,004	58,527	62,477	0
	Guaranteed GBP bank loan	FLmaAC	3.88%	20,643	10,974	9,669
	Guaranteed EUR bank loan	FLmaAC	3.16%	99,969	47,161	52,808
	Other guaranteed loans	FLmaAC
	Other unguaranteed loans	FLmaAC	1.28%	392	392
	Category of instruments
L&R: L	oans and receivables
FaHT:	Financial asset Held for Trading
FaAFS:	Available-For-Sale Financial assets
Htm: H	eld-to-maturity investments
FLmaAC:	Financial Liabilities measured at amortised cost

FlHT: Financial Liabilities Held for Trading

1.c Foreign exchange risk and interest-rate risk: financial instruments (derivatives)

In its application of IAS 39 "Financial instruments" the Group has classified the financial instruments used to cover its interestrate risk and foreign exchange rate risk as economic hedges that do not fulfil the requirements for 'hedge accounting'. They are therefore valued at fair value with changes in fair value, as a result of the effect of the interest-rate difference, recognized in the profit and loss account.

Foreign exchange risk

For hedging foreign exchange risks the Group works with forward contracts, whereby it seeks to hedge 50% to 75% of its monthly GBP income. There is no certainty that the Group's hedging strategy can sufficiently protect its operating results against the consequences of exchange rate fluctuations.

During the past year the company did not conclude new hedging contracts to protect it against a fall in the GBP.

Interest-rate risk

The Group has used financial instruments to hedge the risks of unfavourable interest-rate fluctuations. The Group wishes to keep its net interest cost as low as possible and does not want to be confronted with uncontrollable fluctuations in interest rates. The use of variable interest-rate credits carries with it the risk of major changes in cash flows in case of rising interest rates.

To this end a number of Interest-Rate Swaps (IRS) and interestrate caps with Knock-Outs have been concluded with a number of Belgian banks. In an interest-rate swap the Group commits to paying or receiving the difference between the interest amount at fixed and floating interest rates calculated on a nominal amount. This type of agreement allows the Group to absorb fluctuations due to changes in the market value of the fixed interest-rate debt. To limit the cost of these instruments, a number of Floor contracts with Knock-Ins have been concluded simultaneously.

To manage the interest-rate risk the Group is covered as at 31 December 2010 via various instruments in a notional amount of k€34,889 (31 December 2009: k€40,407).

Nominal amounts per maturity date

The following table gives an overview of the outstanding derivatives on the basis of the nominal amounts per maturity date.

Outstanding deriva tives: nominal amounts per maturity date
(in thousands of €)			31/12/2010		31/12/2009
	within 1 year Due	and 5 years between 1 Due	Due after 5 years	Due within 1 year	and 5 years between 1 Due	Due after 5 years
Foreign exchange risk
Options
Interest-rate risk
IRS	23,243	11,646			40,407
Caps
Total	23,243	11,646	0		0 40,407	0

The maximum hedging term for these instruments runs until 2013.

The decrease in notional hedging amounts and the number of instruments is explained by the repayment scheme of the club deal as from the beginning of 2008 onwards. At the end of 2010, the remaining term is thus between 1 and 3 years.

Fair value by type of derivative

The fair value of derivatives is based on the (available) market price. This information is provided by the Group's financial institutions with which the financial instruments have been concluded. Where the market price is not available, the fair value is estimated. The intrinsic or fair value of an option consists out of the intrinsic value and the time value. The fair value of the interest-rate swap is determined by discounting expected future cash flows using current market interest rates and yield curve over the remaining term of the instrument.

The 9 open instruments at balance sheet date have a total fair value ('marked to market value') of k€-594 at 31 December 2010 (31 December 2009: k€-1,648). The net result in the financial year ending on 31 December 2010 on the financial assets valued at fair value is k€1,073 (31 December 2009: k€-3,174).

Fair value by type

of derivatives (in thousands of €)	Assets		Liabilities		Net Position		Recorded in profit and loss accounts
	31/12/2010	31/12/2009	31/12/2010	31/12/2009	31/12/2010	31/12/2009	31/12/2010	31/12/2009
Foreign exchange risk
Options								-2,703
Interest-rate risk
IRS			594	1,648	-594	-1,648	1,073	-471
Interest-rate caps
Net assets/liabilities			594	1,648	-594	-1,648	1,073	-3,174

Fair value hierarchy included in the statement of financial position

The table below analyses financial instruments of the Group initially measured at fair value, sorted by valuation method. The different levels have been defined as follows:

• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices);
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Assets and liabilities at fair value

			31/12/2010
Level 1	Level 2	Level 3	Total
	594		594
	594		594

Assets and liabilities at fair value

			31/12/2009
Level 1	Level 2	Level 3	Total
	1,648		1,648
	1,648		1,648

During the past financial year, there were no transfers of financial assets or liabilities between levels 1 and 2.

1.d. Other market risks

Other market risks that are unrelated to risks in relation to financial instruments are determined by fluctuations in sales prices and weather conditions.

Sales prices are defined by changes in supply and demand. Demand is affected primarily by climate, increased internationalization of the market, and marketing campaigns. Supply is influenced mainly by availability of raw materials.

Changing weather conditions have an extremely large impact on the availability of vegetables and potatoes. Along with other elements like soil fatigue for certain crops, weather conditions force the PinguinLutosa Group to reduce as far as possible their dependence on the harvest in a particular region.

The deep-frozen vegetable division works in principle with fixed annual contracts, with any shortfalls compensated by purchases of frozen products on the free market. The price fluctuations of recent years are explained in particular by fluctuations in the price of fresh vegetables. The deep-frozen vegetable division has extended its vegetables procurement in recent years from a limited area around its parent company in West Flanders to a broader area around its subsidiaries acquired in Southern France and the United Kingdom (Norfolk and Lincolnshire). The deep-frozen vegetable division has further extended its procurement possibilities by concluding cooperation agreements with a number of deep-frozen vegetable groups in Spain, Germany, Italy, Hungary, Poland, Turkey and other countries.

The profitability of the potato division is also determined by the sales prices it can achieve for its products on the market. In particular its profitability is determined by the difference between the price that it can negotiate for its finished products with buyers and the prices at which the potato division has concluded its potato purchasing contracts and at which it buys non-contracted potatoes (around 50%) on the free market.

Free market potato prices can fluctuate sharply due to variations in supply (mainly due to weather conditions and the quality and storability of potatoes) and to speculation. The negative impact of potato prices on the potato division's profitability is partially cushioned by the focus on the brands segment, on the less pricedriven customer segment and on potato products with a higher added value or a strong innovative character. Extensive storage capacity for both raw materials and finished products and longstanding relationships with growers and potato dealers cushion the effects of fluctuating potato prices.

The potato division has sought to limit the risks of potato availability by:

• having a large potato storage capacity (100,000 tons) at its production sites. This storage capacity provides a cushion against supply shortages. It also serves to optimize the storage life of potatoes, an area in which the potato division has built up considerable expertise. Management in the potato division sees this storage capacity as a competitive advantage;
• good contacts with foreign growers (Netherlands, France and Germany) to obtain certain other potato varieties and in order to have additional purchasing possibilities abroad should the Belgian potato supply be insufficient or too expensive.

In addition, the potato division can extend its supply region with the wide range of different potato varieties, each of which has its own region.

Despite the great care devoted to these aspects, production remains dependent on temporary weather phenomena. Climate conditions can influence supplies and raw materials prices. Harvest yields can fluctuate greatly as a function of weather conditions. These can lead to surpluses or shortages with pressure on sales prices or loss of productivity.

2. Credit risk

Credit risk is the risk of financial loss to the Group through a customer or a financial instrument counterparty being unable to fulfil its contractual obligations. This risk originates in most cases from the Group's customer receivables and investments.

The Group's exposure to credit risk is influenced mainly by the individual characteristics of each customer. The Group has a diversified customer portfolio. To protect itself against customer defaults and bankruptcies the Group uses the services of an international credit insurance company, and also applies internal customer credit limits. Management has developed a credit policy and credit risk exposure is continuously monitored. Any customer whose credit exceeds a specified amount is subjected to a credit check. Following credit checking these customers are subdivided into categories. Customers who represent a high risk factor are treated according to the credit policy that the Group has developed. Credit risk covers only the instrument class of 'loans and receivables' (L&R).

To further limit the credit risk of customers failing to meet their payment obligations, the Group has implemented some time ago credit insurance with an international credit insurance company for all customers. The Group has an invoice discounting facility, whereby the Group sells a portion of its receivables to a financial institution, which enables it to turn receivables into cash more quickly. We refer to note "6.9. Trade and other receivables" for further information on 'invoice discounting'.

For the other instrument classes the credit risk is limited or non existent, given that counterparties are banks with a high creditworthiness.

2.a.1 Exposure to credit risk

The carrying amount of the financial assets represents the Group's maximum exposure to credit risk. The carrying amount is reported including impairments. The maximum exposure to credit risk at the balance sheet date is given in the tables below:

Net carrying amount of financial assets

Total		120,751	-1,238	119,513
Cash and cash equivalents	L&R	54,990		54,990
Short-term deposits	L&R
Derivatives	FaHT
Other receivables	L&R	13,198		13,198
Trade receivables	L&R	52,278	-1,096	51,182
Long-term receivables (> 1 year)	L&R	285	-142	143
		31/12/2010	31/12/2010	31/12/2010
31/12/2010 (in thousands of €)	in accordance with IAS 39	Gross value	Impairment losses	Net carrying amount

Category of instruments

Category of instruments

Net carrying amount of financial assets 31/12/2009

31/12/2009 (in thousands of €)	in accordance with IAS 39	Gross value	Impairment losses	Net carrying amount
		31/12/2009	31/12/2009	31/12/2009
Long-term receivables (> 1 year)	L&R	260	-142	118
Trade receivables	L&R	39,569	-927	38,643
Other receivables	L&R	9,664		9,664
Derivatives	FaHT
Short-term deposits	L&R
Cash and cash equivalents	L&R	37,988		37,988
Total		87,481	-1,069	86,412

At balance sheet date there were no noteworthy concentrations of credit risk. The reader is referred here to note "6.9. Trade and other receivables".

2.a.2 Impairment losses

The contribution of impairment losses recognized during the financial year has been presented by its financial asset category under the specific headings of the statement of financial position.

The total amount of interest on financial assets subject to impairment was nil at 31 December 2010 (nil at 31 December 2009). The net result on loans and receivables (> 1 year) was nil for the financial year ending on 31 December 2010 (nil at 31 December 2009).

3. Share price risk

During the financial year the Group did not hold any investments in shares classified as available for sale. The Group was not exposed to any major share price risk. The net result on the available-for-sale financial assets is nil.

4. Liquidity risk

Liquidity risk is the risk of having insufficient resources in order to fulfil direct obligations which are settled in cash or other financial assets. The Group's approach to liquidity is to ensure, as far as possible, that sufficient liquidity is available at all times to meet liabilities as these fall due, under both normal and abnormal circumstances, without exposing itself to unacceptable losses or damaging the Group's reputation.

The Group uses the 'Activity Based Costing' (ABC) cost price model to estimate the cost price of its products. This helps ensure better management of cash flow requirements. The Group makes sure that it has sufficient available liquidity to meet expected operating costs for a 60 day period, including meeting its financial obligations. This excludes, however, the potential impact of extreme, unforeseeable circumstances, such as a natural disaster.

At 31 December 2010 the Group had €0.5 million of unused available lines (at 31 December 2009: €9.4 million).

In today's economic and banking climate, the company keeps strict watch on its financing structure and is constantly analysing the existing and required amounts and types of financing.

For a discussion of the existing lines and their terms and conditions the reader is referred to the analyses of the interest-rate risks (note "6.20.1.b. Interest-rate risk") and the interest-bearing liabilities (note "6.18. Interest-bearing liabilities").

The following table shows the Group's contractually agreed (undiscounted) outflows in relation to financial liabilities. Only net interest payments and principal repayments are included. The contractual maturity is based on the earliest date on which the Group is required to pay.

Remaining terms of financial debts

31/12/2010

(in thousands of €)		Contractually agreed undiscounted cash flows
	Category of Instruments	due within 6 months	due between 6 months and 1 year	due between 1 and 5 years	due after 5 years	Total
Financial lease obligations	n/a	355	285	511	0	1,151
Unguaranteed bank facilities	FLmaAC
Liabilities to credit institutions	FLmaAC
Other guaranteed financial liabilities	FLmaAC	8	71	71		150
Other non-guaranteed financial liabilities	FLmaAC	78	234	634	2,746	3,692
Guaranteed GBP bank loan	FLmaAC	1,560	9,547	4,450		15,557
Guaranteed EUR bank loan	FLmaAC	9,311	51,675	49,049		110,035
Other guaranteed loans	FLmaAC
Other unguaranteed loans	FLmaAC
Trade debts	FLmaAC	116,679				116,679
Other debts	FLmaAC	505				505
Financial debts: non-derivatives		128,496	61,812	54,715	2,746	247,769
IRS	FlHT	482	219	461	0	1,162
Options	FlHT
Financial debts: derivatives		482	219	461	0	1,162
Total undiscounted cash flows		128,978	62,031	55,176	2,746	248,931

Remaining terms of financial debts (in thousands of €)

31/12/2009

		Contractually agreed undiscounted cash flows
	Category of Instruments	due within 6 months	due between 6 months and 1 year	due between 1 and 5 years	due after 5 years	Total
Financial lease obligations	n/a	628	617	1,109		2,354
Unguaranteed bank facilities	FLmaAC
Liabilities to credit institutions	FLmaAC
Other guaranteed financial liabilities	FLmaAC	8	72	149		229
Other non-guaranteed financial liabilities	FLmaAC	156	156	1,248	2,444	4,004
Guaranteed GBP bank loan	FLmaAC	1,642	10,521	10,472		22,635
Guaranteed EUR bank loan	FLmaAC	6,766	44,684	61,310		112,760
Other guaranteed loans	FLmaAC
Other unguaranteed loans	FLmaAC
Trade debts	FLmaAC	99,429				99,429
Other debts	FLmaAC	350				350
Financial debts: non-derivatives		108,979	56,050	74,288	2,444	241,761
IRS	FlHT	699	649	1,180		2,528
Options	FlHT
Financial debts: derivatives		699	649	1,180		2,528
Total undiscounted cash flows		109,678	56,699	75,468	2,444	244,289

All instruments held at the reporting date and for which payments had been contractually agreed are included. Forecasted data relating to future, new liabilities are not included. Amounts in foreign currencies have been translated at the closing rate at the reporting date. The variable interest payments arising from the financial instruments were calculated using the applicable forward interest rates.

5. Financial instruments by class and category

The table below gives an overview of the various classes of financial assets and liabilities with their respective net balance sheet carrying amounts and their respective fair values and analyzed by their measurement category in accordance with IAS 39 "Financial Instruments: Recognition and Measurement" or IAS 17 "Leases".

Cash and equivalents, other financial investments, treasury investments, trade and other receivables, loans and receivables have mostly short maturities. For this reason the net carrying amount at closing date approximates the fair value. Trade payables have in general also short maturities and for this reason the net carrying amounts at maturity approximate their fair value. The fair value of interest-bearing liabilities is calculated as the present value of the future cash flows. The fair value of the derivatives is calculated using standard financial valuation models using market data.

31/12/2010 (in thousands of €)			Amounts recognised in balance sheet in accordance with IAS 39			accordance with IAS 17 Amounts recognised in balance sheet in
	Category in accor dance with IAS 39	Net carrying amount 31/12/2010	Amortized cost	recognized Fair value in equity	recognized in profit or loss Fair value		31/12/2010 Fair value
Assets
Non-current assets
Other financial fixed assets	FaAFS						n/a*
Other non-current receivables	L&R	143	143				143
Current assets
Trade receivables	L&R	51,182	51,182				51,182
Other receivables	L&R	13,198	13,198				13,198
Derivatives	FaHT
Short-term deposits	L&R
Cash and cash equivalents	L&R	54,990	54,990				54,990
Liabilities
Non-current liabilities
Finance leasing	n/a	476				476	476
Bank loans	FLmaAC	53,055	53,055				53,044
Bond loans	FLmaAC
Other financial debts	FLmaAC	2,500	2,500				3,018
Other amounts payable	FLmaAC
Current liabilities
Finance leasing	n/a	629				629	629
Bank loans (credit institutions): debts > 1 year payable within current year	FLmaAC	12,781	12,781				15,802
Bank loans	FLmaAC	51,516	51,516				51,620
Derivatives	FlHT	594			594		594
Other financial debts	FLmaAC	235	235				218
Trade payables	FLmaAC	116,679	116,679				116,679
Other amounts payable	FLmaAC	646	646				646
Total by category in accordance with IAS 39
Loans and receivables	L&R	119,513	119,513				119,513
Financial assets Held for Trading	FaHT
Financial liabilities Held for Trading	FlHT	594			594		594
Available-for-sale financial assets	FaAFS						n/a*
Held-to-maturity investments	Htm
Financial liabilities measured at amortised cost	FLmaAC	237,412	237,412				241,026

* As no reliable estimate can be made of the fair value of the other participating interests, financial assets for which no active market exists are valued at cost less any impairments.

31/12/2009 (in thousands of €)			Amounts recognised in balance sheet in accordance with IAS 39
	Category in accor dance with IAS 39	Net carrying amount 31/12/2009	Amortized cost	recognized Fair value in equity	recognized in profit or loss Fair value	accordance with IAS 17 Amounts recognised in balance sheet in	31/12/2009 Fair value
Assets
Non-current assets
Other financial fixed assets	FaAFS						n/a*
Other non-current receivables	L&R	118	118				118
Current assets
Trade receivables	L&R	38,643	38,643				38,643
Other receivables	L&R	9,664	9,664				9,664
Derivatives	FaHT
Short-term deposits	L&R
Cash and cash equivalents	L&R	37,988	37,988				37,988
Liabilities
Non-current liabilities
Finance leasing	n/a	1,076				1,076	1,076
Bank loans	FLmaAC	65,105	65,105				66,880
Bond loans	FLmaAC
Other financial debts	FLmaAC	2,736	2,736				3,023
Other amounts payable	FLmaAC
Current liabilities
Finance leasing	n/a	1,186				1,186	1,186
Bank loans (credit institutions): debts > 1 year payable within current year	FLmaAC	10,196	10,196				13,832
Bank loans	FLmaAC	48,009	48,009				47,887
Derivatives	FlHT	1,648			1,648		1,648
Other financial debts	FLmaAC	227	227				365
Trade payables	FLmaAC	99,429	99,429				99,429
Other amounts payable	FLmaAC	727	727				727
Total by category in accordance with IAS 39
Loans and receivables	L&R	86,413	86,413				86,413
Financial assets Held for Trading	FaHT
Financial liabilities Held for Trading	FlHT	1,648			1,648		1,648
Available-for-sale financial assets	FaAFS						n/a*
Held-to-maturity investments	Htm
Financial liabilities measured at amortised cost	FLmaAC	226,430	226,430				232,143

* As no reliable estimate can be made of the fair value of the other participating interests, financial assets for which no active market exists are valued at cost less any impairments.

During the present financial year the Group has not used financial assets as security for liabilities or contingent liabilities, and it is not required to meet contractual obligations in this respect. The shares of the subsidiaries have been pledged to guarantee the club deal financing.

6. Capital structure

The Group constantly seeks to optimize its capital structure (balance between debts and equity) with a view to maximize shareholder value. The Group strives for a flexible structure in terms of periodicity and credit type, which enables it to grab potential opportunities. The various capital components are discussed in the note on equity and in note "6.18. Interest-bearing liabilities".

There are no target ratios set for solvency or gearing. The Group seeks to follow the prevailing norms for the market and sector. The capital structure is presented at regular intervals to the Audit Committee and the Board of Directors.

7. OTHER ELEMENTS

7.1 SUBSIDIARIES

The parent company of the Group is PinguinLutosa NV, Westrozebeke, Belgium. At 31 December 2010 there were 19 subsidiaries included in the consolidated financial statements by the full consolidation method.

Proportion of the capital held (in %)	Change of percentage of capital held (as compared to previous period)	Voting rights (%)
100.00%	0.00%	100.00%
99.99%	0.00%	99.99%
100.00%	0.00%	100.00%
99.80%	0.00%	99.80%
99.90%	0.00%	99.90%
52.00%	0.00%	52.00%
		100.00%
	100.00%	0.00%

PinguinLutosa Foods NV Zone industrielle du Vieux-Pont 5 7900 Leuze-en-Hainaut
BE 0418.162.347	100.00%	0.00%	100.00%
G&L Van den Broeke - Olsene NV Schoendalestraat 221 8793 St.-Eloois-Vijve (Waregem) BE 0420.902.202	100.00%	0.00%	100.00%
Vanelo NV Moerbosstraat 50 8793 St.-Eloois-Vijve (Waregem) BE 0458.234.829	100.00%	0.00%	100.00%
Lutosa UK Ltd PO BOX 83 St Ives Cambridgeshire PE27 5PD United Kingdom	100.00%	0.00%	100.00%
Lutosa España SA C/ Diego Ayllon, 8 - 3°B 28043 Madrid Spain	90.00%	0.00%	90.00%
Lutosa América Latina Ltda Av. das Americas, 500 - bl. 4 - Cob 317 CEP22640-100 Rio de Janeiro / RJ Brazil	98.12%	0.00%	98.12%
PinguinLutosa Japan K.K. 208 Palais Royal Rokubancho 6-1 Rokubancho Chiyoda ku Tokyo 102-0085 Japan	100.00%	0.00%	100.00%
PinguinLutosa Foods Shanghai Ltd 7-B, Orient International Science & Technology Palace No.58 XiangCheng Road 200122 Shanghai China	100.00%	0.00%	100.00%
Lutosa France SARL Rue du Président Roosevelt 26 59150 Wattrelos France	100.00%	0.00%	100.00%
PinguinLutosa Italia SRL via dell'Arrigoni, 220 – interno 5 47023 Cesena (FC) Italy	100.00%	0.00%	100.00%
Pinguin Hong Kong Ltd 25/F One Capital Place 18 Luard Road Wanchai Hong Kong	100.00%	0.00%	100.00%
PinguinLutosa CEE GMBH Franzosengraben 20 1030 Wien Austria	100.00%	0.00%	100.00%

Changes in the consolidation scope

We refer to note "2.4. Changes in the consolidation scope" for a discussion of:

• the changes in the consolidation scope for the financial year ending on 31 December 2010
• the changes in the consolidation scope for the financial year ending on 31 December 2009

Companies that are neither subsidiaries

nor associated companies

Tomates d'Aquitaine SAS is not included in the consolidation scope, because the Group does not have the power to beneficially control its financial and operational policy, nor does it have significant direct or indirect influence on this company.

Name, full address of the registered office	Proportion of the		Data from the most recent period of which annual accounts are available 30-06-2010
and, for companies governed by Belgian law, the VAT or national number	capital held (in %)	Currency unit	Equity	Net result
Tomates d' Aquitaine SAS 35, rue Pierre Pinson 24100 Bergerac
France	14.28%	EUR	678,780	13,710

7.2 PENDING DISPUTES

Pending disputes at 31 December 2010

Dispute with Maxwell Chase Technologies

Various Group companies have been summonsed before the Kortrijk Commercial Tribunal at the request of the U.S. company Maxwell Chase Technologies LLC. This company is claiming damages of around 16 million US dollars for the termination of a distribution agreement between Maxwell Chase Technologies and Techno-Food NV. Techno-Food NV is the former subsidiary of VDI (later renamed Pinguin Salads BVBA), which was sold by the Group in 2002. The facts mentioned above post-date the sale of Techno-Food NV by the Group. Based on the evidence available to it at the moment, management deems it very unlikely that the Group will be condemned to pay compensation to Maxwell Chase Technologies LLC. No provision has been set up. On 24 December 2008 the Ghent Court of First Instance issued a preliminary decision in this case, declaring itself competent to judge on this matter and ruling that the law of the US state of Georgia is applicable to the terminated distribution agreement. The co-defendants filed an appeal against the interim judgement on 26 May 2009. The case is now pending before the Court of Appeal of Ghent. The matter will be pleaded further at the session of 4 April 2011.

Dispute Giblet

The matter concerns a dispute with a local farmer, whose property had previously been irrigated using waste water from the factory. The historical clean-up was claimed in spite of the fact that the farmer has been using the grounds and the basins for years himself without the waste water from the factory. In the first instance, Pinguin Aquitaine SAS was ordered to pay k€438 on 18 March 2009. Based on new elements, Pinguin Aquitaine SAS brought the case before the Court of Appeal. In 2009 a provision of k€250 has been recorded. Pinguin Aquitaine was condemned by the Court of Appeal to clean up this area. PinguinLutosa is considering to appeal to the Court of Cassation. Given the appeal decision an additional provision of k€ 300 was made.

Dispute Pinguin Salads bvba

With respect to an occupational accident involving an interim employee, Pinguin Salads BVBA was held liable for compensation for damages not covered by the occupational health insurer of the interim office. Pinguin Salads BVBA and Quality Invest BVBA and Mr Francis Demeestere were held severally liable in first instance. However, the insurance company Axa Belgium, as civil liability insurer of Pinguin Salads BVBA, was condemned to guarantee the payment of that claim. Meanwhile this decision was appealed by Axa Belgium SA, Quality Invest BVBA and Mr Francis Demeestere.

Dispute Pinguin Aquitaine sas

Following an investigation, the French Ministry of the Economy stated that certain conditions for granting agricultural subsidies in the period 2000-2002 were not complied with correctly. The ministry is claiming for the return of all of the subsidies. That amounts to k€150. As a precaution, a provision has been made in the amount of k€100.

Dispute PinguinLutosa Foods Uk Ltd. (Easton)

In PinguinLutosa Foods UK Ltd there is a dispute with the owners of the rented site in Easton (United Kingdom) related to clearing and repair costs when the rented site in Easton was vacated. The maximum claim amounts to £1 million but PinguinLutosa considers this amount to be exagerrated. By way of precaution and without including any admission of guilt, a partial provision has been made of £0.3 million. More information with regard to this provision is included in the note related to the non-recurring events (see note "5.4. Operating result (EBIT)").

7.3 COMMITMENTS

Commitments concerning investments in tangible fixed assets

At 31 December 2010 the Group had commitments to acquire assets in an amount of k€3,012 (at 31 December 2009: k€1,250). These relate to acquisitions of a sorting machine and forklifts in the potato division in an amount of k€560 and a freezer and compressors in the United Kingdom in an amount of k€2,452.

Procurement of fresh vegetables and potatoes

The deep-frozen vegetable division has concluded sowing and purchase contracts with a number of farmers for the procurement of fresh vegetables from the harvests in the financial year 2011. Contracts totaling k€21,719 (together with the United Kingdom), for the procurement of fresh vegetables, had been concluded at 31 December 2010 (at 31 December 2009: k€30,246). This amount can fluctuate as a function of climate conditions and market prices for fresh vegetables.

The potato division has concluded a number of purchase contracts with farmers and dealers for potatoes from the 2011 and 2012 harvests. Calculation of the total value is not possible given that contract values can fluctuate as a function of quality and spot prices.

Rent and operating leases

The Group has concluded rental and lease contracts, mainly for buildings and vehicles. The tables below give an overview of the current value of rental and lease contracts by maturity period.

Rent and operating

	leases: future payments

31/12/2010	31/12/2009
12,911	9,424
38,503	30,023
57,116	44,694
108,530	84,142

The Group is working based on the assumption that these contracts will be renewed or replaced at term.

The increase at 31 December 2010 is due to the fact that in 2010 a number of new operating lease contracts have been agreed in the United Kingdom, mainly related to the rental of external storage in Wisbesch for a 12 year term with a nominal annual cost of €2.4 million.

The amount of rent and leasing debts also includes the sale and rent back transaction involving the potato division real estate. In 2007 a rental contract has been concluded for a 15 year term at a nominal annual cost of €4.2 million.

The expenses included in the statement of comprehensive income are included in table below:

Rent and operating leases:

expenses (in thousands of €)	31/12/2010	31/12/2009
Expenses included in statement of comprehensive income (forklifts, hardware, buildings, …)	10,185	10,169
Total	10,185	10,169

Option

The Group has an option to purchase the land and buildings of the former Padley Vegetables Ltd. (now integrated into Pinguin-Lutosa Foods UK Ltd.) within 3 years for k£6,000 and an option to purchase the land and buildings in King's Lynn (PinguinLutosa Foods UK Ltd.) within 1 year for k£15,000.

Bank guarantees

There is a bank guarantee outstanding in an amount of k€163 until 2013 in favour of OVAM (Flemish Public Waste Company) to guarantee the decontamination of polluted soil, and a bank guarantee of k€149 in favour of the Roeselare Customs and Excise office.

Bank covenants

The club deal (dated 8 January 2008, credit facility of €140 million), for which the covenant package has been renegotiated in 2009, included as from the third quarter of 2009 onwards a number of changed covenants:

• (i) net financial debt /REBITDA ratio (≤ 3.52 at 31 December 2010)
• (ii) EBITDA/interest payments ratio (≥ 3.6 at 31 December 2010)
• (iii) cash flow/capital and interest repayments ratio (≥ 1)
• (iv) the extent of investment (for calendar year 2010 fixed at maximum €15.0 million)
• (v) the extent of invoice discounting (for calendar year 2010 fixed at €50 million)

The margin applicable on the credits depends on performance against these covenants. For a calculation of the ratios under items (i), (ii) and (iii) a period of 12 months preceding the date of the examination must be taken into account. These covenants must be fulfilled on a quarterly basis, and reporting to the credit providers is therefore also made on a quarterly basis. In the different quarters of 2010 these covenants were honoured.

The 'net financial debt /REBITDA' ratio amounted to 2.58 at 31 December 2010 compared to a maximum covenant value of 3.52 at 31 December 2010.

The 'interest cover' ratio or 'EBITDA/interest payments' ratio amounted to 4.49 at 31 December 2010 compared to a minimum covenant value of 3.6 at 31 December 2010.

The 'cash flow cover' ratio or 'cash flow/capital and interest repayments' ratio amounted to 1.14 at 31 December 2010 compared to a minimum covenant value of 1.0 at 31 December 2010.

The extent of investment amounted to €14.8 million at 31 December 2010 compared to a covenant value for calendar year 2010 fixed at maximum €15.0 million.

The extent of invoice discounting amounted to €46.4 million (offbalance) at 31 December 2010 compared to a covenant value for calendar year 2010 fixed at maximum €50.0 million.

Restrictions on dividend

Within the framework of the club deal that was concluded, several restrictions were also imposed in connection with the dividend policy to be employed. More specifically, in the event of a possible dividend payment, the outstanding financial debt as a result of the club deal needs to be taken into account, and a part is reserved for continuing to scale down debt.

Off-balance sheet commitments

Off-balance sheet commitments:

guarantees (in thousands of €)	31/12/2010	31/12/2009
Registered lien on general assets	5,000	5,000
Mandate on general assets	88,418	85,297
Mortgage mandate	9,000	9,000
Registered mortgage	1,000	1,000
Joint guarantee	2,671	3,604
Total	106,089	103,901

7.4 RELATED PARTIES

Transactions between PinguinLutosa NV and its subsidiaries, which are related parties, have been eliminated in the consolidation and are therefore not included in this note. The Group has no participating interests in joint ventures, nor in associated enterprises which could therefore not be classified as related parties. The Group does have a participating interest in Tomates d'Aquitaine SAS. This falls under the IAS 24 definition of related parties, but is not included in this note, as there have been no further transactions beyond the taking of the interest.

Director's remuneration

Director's remuneration 31/12/2010 (in thousands of €)	remuneration Fixed	remuneration Variable	Total
The Marble BVBA	90		90
Vijverbos NV
Patrick Moermans	15	12	27
Jo Breesch	15	12	27
Gert Vanhuffel		3	3
Management Deprez BVBA	15	18	33
Deprez Invest NV	15	11	26
Marc Ooms BVBA	15	8	23
Luc Vandewalle	15	17	32
Total	180	81	261

There are no directors' pension plans, nor were long-term remuneration, termination benefits or benefits in shares paid out to the directors during the financial year.

Remuneration CEO

Remuneration CEO

Remuneration CEO 31/12/2010 (in thousands of €)	remuneration Fixed	Variable remuneration	contractual obligations Other	Total
Vijverbos NV	300	16	7	323

The CEO's fixed compensation has been changed since last year based on market data for similar functions. In 2010 a bonus of k€ 16 has been paid related to the results of 2009.

Executive directors (excluding CEO)

Executive directors (excluding CEO)

31/12/2010	31/12/2009
0	2
	496
	6
	8
0	510

There are no other executive directors apart from the CEO.

Executive management – Group

Executive management – Group

(in thousands of €)	31/12/2010	31/12/2009
Number of persons at year-end	3	3
- Basic remuneration	329	469
- Variable remuneration	16	34
- Remuneration as director of subsidiaries
- Unpaid debt
- Termination benefits
- Other benefits	25	33
Total	370	536

The other benefits consist mainly of the reimbursement of expenses incurred by Group executives on behalf of the Group: business expenses, rental costs passed on to the Group and interest charges. As the Group executives operate on a self-employed basis, their services are invoiced to PinguinLutosa NV. The above-mentioned amounts are therefore VAT exclusive.

Union Fermière Morbihannaise SCA

Union Fermière Morbihannaise SCA is a French agricultural cooperative with its origin in Bretagne. The company is active in livestock, grain production, vegetable production and in several sub-sectors that process and market agricultural produce. UFM SCA is the owner of Cecab. Cecab's frozen food activities will be integrated with PinguinLutosa on 1 May 2011. UFM SCA joined the shareholders group via a private increase in capital, in deviation from the right of first refusal, and through the capital increase of €10 million, has built up an interest of 7.4% in the Group.

Les Prés Salés NV

Les Prés Salés NV is a real estate company which has acted as a party in the sale and rent back of the real estate of the Lutosa Group. Les Prés Salés NV's shareholders are Food Invest International NV and Deprez Holding NV. There are no other shareholders.

Vijverbos NV

Vijverbos NV is a management company, of which Mr Herwig Dejonghe is the shareholder. In 2010 no other transactions occurred or services have been delivered apart from the management advices of the CEO. We refer to the overview of the remuneration of the CEO.

Vijverbos NV used to own a plot of land at Westrozebeke that was used by PinguinLutosa NV and that previously has been leased by Vijverbos NV to PinguinLutosa NV. On 5 January 2009 Vijverbos NV officially sold this land and the buildings on it to PinguinLutosa Group companies. This transaction took place on an arm's length basis. An advance payment of k€550 was already made in the course of 2008 and in 2009 the remaining amount of k€76k has been paid. For the purchase of the buildings on those properties, an amount of k€394 was paid in 2009.

Hot Cuisine NV

Hot Cuisine NV is a company that is part of the Univeg Group and, as such, is partially controlled, directly or indirectly, by Mr Hein Deprez. Hot Cuisine NV is active in the development, preparation and commercialisation of ready-to-use meals. It has sites in Belgium and the US. PinguinLutosa supplies vegetables and potato preparations to Hot Cuisine NV and purchases certain dishes (lasagnes) from Hot Cuisine NV.

European Food Transport (EFT) NV

EFT NV is a company that is part of the Univeg Group and, as such, is partially controlled, directly or indirectly, by Mr Hein Deprez. EFT NV is active as a transport company for the national and international transport and distribution of food products. In that capacity, PinguinLutosa sometimes uses the services of EFT NV.

Shipex NV

Shipex NV is a company that is partially controlled by Ms Veerle Deprez. Shipex NV is a major 'freight forwarder' (sea and air freight; containers). In that capacity, PinguinLutosa sometimes uses the services of Shipex NV.

Others

This heading includes the family members of the executive directors that have offered services and/or delivered other goods for the Group.

Related parties (in thousands of €)	31/12/2010	31/12/2009
Transactions and outstanding balances with related parties :
Union Fermière Morbihannaise SCA
- Purchase of products, services and other goods	468
- S ales of products, services and other goods	8,489
- Outstanding receivables	481
- Outstanding payables	145
Univeg and associated companies
- Purchase of products, services and other goods	390	225
- S ales of products, services and other goods	1,436	1,644
- Outstanding receivables	224	337
- Outstanding payables	79	18
Shipex NV
- Purchase of services and other goods	389	87
- Outstanding payables	321	8
Les Prés Salés NV
- Purchase of goods and services (rent)	5,933	4,777
- Advance payment of goods and services (rent)	401	395
Vijverbos NV
- Purchase land and buildings		470
- Outstanding payables
Others
- S ervices and other goods
- S ervices offered		447

7.5 Events after the balance sheet date

On 14 March 2011, PinguinLutosa announced the acquisition of Scana Noliko. The acquisition is related to all the shares in the companies (including the real estate company). The acquisition price amounts to €155 million. The transaction is expected to be completed before 30 June 2011. In the press release dated 14 March 2011, further details regarding this transaction are explained.

There are no other major events subsequent to the balance sheet date which have a major impact on the further evolution of the company.

7.6 Non-audit missions undertaken by the statutory auditor + related parties

During the financial year from 1 January 2010 to 31 December 2010, assignments in an amount of k€244 were undertaken by the statutory auditor and persons working under cooperative arrangements with him. These assignments consisted of supplementary audit services, tax and legal advisory services.

The audit fees charged to the Group for the financial year ending 31 December 2010 amounted to k€249.

Additional tax and legal advisory activities were presented in advance to the Audit Committee for approval. The Group's Audit Committee gave a positive decision on this extension.

statement from the responsible persons

Declaration regarding the information given in this annual report for the 12 months period ended 31 December 2010.

The undersigned, in the name and on behalf of PinguinLutosa NV, declare that, as far as they are aware:

• The financial statements, established in conformity with the applicable accounting standards, give a true and fair view of the equity, the financial position and the results of PinguinLutosa NV, including its consolidated subsidiaries;
• The annual report for the 12 months period ended 31 December 2010 contains a true and fair statement of the important events, the results and the position of Pinguin-Lutosa NV, including its consolidated subsidiaries, as well as a comment on the principal risks and uncertainties confronting the Group.

Vijverbos NV, represented by Mr Herwig Dejonghe, CEO The New Mile BVBA, represented by Mr Steven D'haene, CFO The Marble BVBA, represented by Mr Luc Van Nevel, president of the Board of Directors

statutory auditor's report on the consolidated financial statements

PinguinLuto sa NV

Statutory auditor's report on the consolidated financial statements for the year ended 31 December 2010 to the shareholders' meeting

To the shareholders

As required by law and the company's articles of association, we are pleased to report to you on the audit assignment which you have entrusted to us. This report includes our opinion on the consolidated financial statements together with the required additional comment.

Unqualified audit opinion on the consolidated financial statements

We have audited the accompanying consolidated financial statements of PinguinLutosa NV ("the company") and its subsidiaries (jointly "the group"), prepared in accordance with International Financial Reporting Standards as adopted by the European Union and with the legal and regulatory requirements applicable in Belgium. Those consolidated financial statements comprise the consolidated balance sheet as at 31 December 2010, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, as well as the summary of significant accounting policies and other explanatory notes. The consolidated balance sheet shows total assets of k€420,237 and the consolidated income statement shows a consolidated profit (group share) for the year then ended of k€2,813.

The board of directors of the company is responsible for the preparation of the consolidated financial statements. This responsibility includes among other things: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances.

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with legal requirements and auditing standards applicable in Belgium, as issued by the "Institut des Réviseurs d'Entreprises/Instituut van de Bedrijfsrevisoren". Those standards require that we plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.

In accordance with these standards, we have performed procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we have considered internal control relevant to the group's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the group's internal control. We have assessed the basis of the accounting policies used, the reasonableness of accounting estimates made by the company and the presentation of the consolidated financial statements, taken as a whole. Finally, the board of directors and responsible officers of the company have replied to all our requests for explanations and information. We believe that the audit evidence we have obtained provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements give a true and fair view of the group's financial position as of 31 December 2010, and of its results and its cash flows for the year then ended, in accordance with International Financial Reporting Standards as adopted by the EU and with the legal and regulatory requirements applicable in Belgium.

Additional comment

The preparation and the assessment of the information that should be included in the directors' report on the consolidated financial statements are the responsibility of the Board of Directors.

Our responsibility is to include in our report the following additional comment which does not change the scope of our audit opinion on the consolidated financial statements:

• The directors' report on the consolidated financial statements includes the information required by law and is in agreement with the consolidated financial statements. However, we are unable to express an opinion on the description of the principal risks and uncertainties confronting the group, or on the status, future evolution, or significant influence of certain factors on its future development. We can, nevertheless, confirm that the information given is not in obvious contradiction with any information obtained in the context of our appointment.

Kortrijk, 18 maart 2011 The statutory auditor

DELOITTE Bedrijfsrevisoren / Reviseurs d'Entreprises BV o.v.v.e. CVBA / SC s.f.d. SCRL Represented by Kurt Dehoorne

condensed statutory accounts of the parent company PinguinLutosa NV, according to Belgian accounting standards

Parent company statutory accounts

The financial statements of the parent company, PinguinLutosa NV, are presented below in a condensed form. The statutory auditor issued an unqualified report on the financial statements of PinguinLutosa NV. In accordance with Belgian company law, the directors' report and financial statements of the parent company, PinguinLutosa NV, together with the statutory auditor's report, will be deposited with the National Bank of Belgium as provided by law.

They are available on our website www.pinguinlutosa.com and on request from: PinguinLutosa NV Romenstraat 3 BE - 8840 Westrozebeke (Staden) Belgium www.pinguinlutosa.com

Condensed statutory accounts of PinguinLutosa NV

ASS ETS

	ASSETS (in thousands of €)	Codes	31/12/2010	31/12/2009
	FIXED ASSETS	20/28	214,849	215,952
I.	Formation expenses	20	1,795	2,021
II.	Intangible assets	21	514	816
III.	Tangible assets	22/27	23,392	23,967
	A. Land and buildings	22	5,275	5,562
	B. Plant, machinery and equipment	23	17,334	17,651
	C. Furniture and vehicles	24	237	232
	D. Leasing and other similar rights	25		7
	E. Other tangible assets	26
	F. Assets under construction and advance payments	27	546	515
IV.	Financial assets	28	189,148	189,148
	A. Affiliated enterprises	280/1	189,130	189,130
	1. Participating interests	280	186,651	186,651
	2. Amounts receivable	281	2,479	2,479
	B. Other enterprises linked by participating interests	282/3
	1. Participating interests	282
	2. Amounts receivable	283
	C. Other financial assets	284/8	18	18
	1. S hares	284
	2. Amounts receivable and cash guarantees	285/8	18	18
	CURRENT ASSETS	29/58	74,020	87,187
V.	Amounts receivable after more than one year	29
	A. Trade debtors	290
	B. Other amounts receivable	291

	ASSETS (continued) (in thousands of €)	Codes	31/12/2010	31/12/2009
VI.	Stocks and contracts in progress	3	34,546	44,858
	A. Stocks	30/36	34,546	44,858
	1. Raw materials and consumables	30/31	2,297	1,531
	2. Work in progress	32
	3. Finished goods	33	32,249	43,327
	4. Goods purchased for resale	34
	5. Immovable property acquired or constructed for resale	35
	6. Advance payments	36
	B. Contracts in progress	37
VII.	Amounts receivable within one year	40/41	17,426	39,156
	A. Trade debtors	40	9,718	15,894
	B. Other amounts receivable	41	7,708	23,262
VIII.	Investments	50/53	10,000	0
	A. Own shares	50
	B. Other investments and deposits	51/53	10,000
IX.	Cash at bank and in hand	54/58	11,984	2,926
X.	Deferred charges and accrued income	490/1	64	247
	TOTAL ASSETS	20/58	288,869	303,139

LIAB ILITI ES

	LIABILITIES (in thousands of €)	Codes	31/12/2010	31/12/2009
	CAPITAL AND RESERVES	10/15	129,532	119,325
I.	Capital	10	113,052	103,052
	A. Issued capital	100	113,052	103,052
	B. Uncalled capital	101
II.	Share premium acount	11	11,376	11,376
III.	Revaluation surplus	12
IV.	Reserves	13	7,461	7,461
	A. Legal reserve	130	285	285
	B. Reserves not available for distribution	131	25	25
	1. In respect of own shares held	1310
	2. Other	1311	25	25
	C. Untaxed reserves	132	1,477	1,477
	D. Reserves available for distribution	133	5,674	5,674
V.	Profit carried forward	140
	Loss carried forward (-)	141	-2,422	-2,663
VI.	Investment grants	15	65	99
	PROVISIONS AND DEFERRED TAXATION	16	91	138
VII.	Provisions and deferred taxation	16	91	138
	A. Provisions for liabilities and charges	160/5	57	87
	1. Pensions and similar obligations	160	25	53
	2. Taxation	161
	3. Major repairs and maintenance	162
	4. Other liabilities and charges	163/5	32	34
	B. Deferred taxation	168	34	51
	CREDITORS	17/49	159,246	183,676

	LIABILITIES (continued) (in thousands of €)	Codes	31/12/2010	31/12/2009
VIII.	Amounts payable after more than one year	17	45,814	55,394
	A. Financial debts	170/4	45,814	55,394
	1. S ubordinated loans	170
	2. Unsubordinated debentures	171
	3. Leasing and other similar obligations	172
	4. Credit institutions	173	43,385	52,808
	5. Other loans	174	2,429	2,586
	B. Trade debts	175
	1. S uppliers	1750
	2. Bills of exchange payable	1751
	C. Advances received on contracts in progress	176
	D. Other amounts payable	178/9
IX.	Amounts payable within one year	42/48	113,106	127,453
	A. Current portion of amounts payable aftre more than one year	42	10,976	8,499
	B. Financial debts	43	18,633	37,303
	1. Credit institutions	430/8	16,655	37,156
	2. Other loans	439	1,978	147
	C. Trade debts	44	32,463	33,855
	1. S uppliers	440/4	32,463	33,855
	2. Bills of exchange payable	441
	D. Advances received on contracts in progress 46 45 1. Taxes 450/3 2. Remuneration and social security 454/9 47/48	60	168
	E. Taxes, remuneration and social security		1,759	1,858
			231	259
			1,528	1,599
	F. Other amounts payable		49,215	45,770
X.	Accrued charges and deferred income	492/3	326	829
	TOTAL LIABILITIES	10/49	288,869	303,139

I N CO M E STATEM ENT

	INCOME STATEMENT (in thousands of €)	Codes	31/12/2010	31/12/2009
I.	Operating income	70/74	120,445	135,587
	A. Turnover	70	127,307	126,894
	B. Increase (+) ; Decrease (-) in stocks of finished goods, work and contracts in progress	71	-10,913	4,656
	C. Own construction capitalised	72
	D. Other operating income	74	4,051	4,037
II.	Operating charges (-)	60/64	-114,708	-132,703
	A. Raw materials, consumables and goods for resale	60	84,611	94,303
	1. Purchases	600/8	85,377	94,411
	2. Increase (-) ; Decrease in stocks (+)	609	-766	-108
	B. Services and other goods	61	13,277	22,408
	C. Remuneration, social security costs and pensions	62	10,261	10,029
	D. Depreciation of and other amounts written off formation expenses, intangible and tangible fixed assets	630	4,410	5,393
	E. Increase (+) ; Decrease (-) in amounts written off stocks, contracts in progress and trade debtors	631/4	195	59
	F. Increase (+) ; Decrease (-) in provisions for liabilities and charges	635/7	-30	2
	G. Other operating charges	640/8	1,984	509
	H. Operating charges capitalised as reorganization	649
III.	Operating profit (+)	70/64	5,737	2,884
	Operating loss (-)	64/70
IV.	Financial income	75	506	2,754
	A. Income from financial fixed assets	750
	B. Income from current assets	751	294	227
	C. Other financial income	752/9	212	2,527
V.	Financial charges (-)	65	-6,023	-7,419
	A. Interest and other debts charges	650	4,869	5,742
	B. Increase (+) ; Decrease (-) in amounts written off current assets other than mentioned under II. E	651	40	34
	C. Other financial charges	652/9	1,114	1,643
VI.	Profit on ordinary activities before taxes (+)-	70/65	220
	Loss on ordinary activities before taxes (-)	65/70		-1,781

INCOME STATEMENT (continued)

	(in thousands of €)	Codes	31/12/2010	31/12/2009
VII.	Extraordinary income	76	29	21,288
	A. Adjustments to depreciation of and to other amounts written off intangible and tangible fixed assets	760
	B. Adjustments to amounts written of financial fixed assets	761
	C. Adjustments to provisions for extraordinary liabilities and charges	762
	D. Gain on disposal of fixed assets	763	29	14
	E. Other extraordinary income	764/9		21,274
VIII.	Extraordinary charges (-)	66	-33	-24
	A. Extraordinary depreciation of and extraordinary amounts written off formation expenses, intangible and tangible fixed assets	660
	B. Amounts written off financial fixed assets	661
	C. Provisions for extraordinary liabilities and charges	662
	D. Loss on disposal of fixed assets	663		1
	E. Other extraordinary charges	664/8	33	23
	F. Extraordinary charges capitalised as reorganization costs (-)	669
IX.	Profit for the period before taxes (+)	70/66	216	19,483
	Loss for the period before taxes (-)	66/70
IX bis.	A. Transfer from deferred taxation (+)	780	17	34
	B. Transfer to deferred taxation (-)	680
X.	Income taxes (-)/(+)	67/77	8	1
	A. Income taxes	670/3		2
	B. Adjustment of income taxes and write-back of tax provisions	77	8	3
XI.	Profit of the period (+)	70/67	241	19,518
	Loss of the period (-)	67/70
XII.	Transfer from untaxed reserve (+)	789
	Transfer to untaxed reserve (-)	689
XIII.	Profit for the period available for appropriation (+)	70/68	241	19,518
	Loss for the period available for appropriation (-)	68/70

APPRO PRIATI O N ACCO U NT

APPROPRIATION ACCOUNT

	(in thousands of €)	Codes	31/12/2010	31/12/2009
A.	Profit to be appropriated	70/69
	Loss to be appropriated (-)	69/70	-2,422	-2,663
	1. Profit for the period available for appropriation	70/68	241	19,518
	Loss for the period available for appropriation (-)	68/70
	2. Profit brought forward	790
	Loss brought forward (-)	690	-2,663	-22,181
B.	Transfers from capital and reserves	791/2	0	0
	1. From capital and share premium account	791
	2. From reserves	792
C.	Transfers to capital and reserves (-)	691/2	0	0
	1. To capital and share premium account	691
	2. To legal reserve	6920
	3. To other reserves	6921
D.	Result to be carried forward	14	-2,422	-2,663
	1. Profit to be carried forward	693
	2. Loss to be carried forward (-)	793	-2,422	-2,663
E.	Shareholders' contribution in respect of losses	794	0	0
F.	Distribution of profit (-)	694/6	0	0
	1. Dividends	694
	2. Directors' emoluments	694
	3. Other allocations	696

CO N SO LI DATED K E Y FI G U R ES

Consolidated key figures: IFRS income statement

(in thousands of €))	31/12/2010	31/12/2009
Sales	483,564	436,838
Operating income	474,907	446,798
Operating cash flow (EBITDA)	27,106	36,101
Operating profit (EBIT)	7,323	15,041
Recurring EBITDA (REBITDA)	25,924	36,101
Recurring EBIT (REBIT)	6,436	16,095
Financial income	2,708	3,437
Financial charges	-7,388	-11,452
Net profit after taxes	2,755	10,330
Earnings per share: part of the Group (in €)	0.26	0.93
Ratios
EBITDA / Operating income	5.7%	8.1%
EBIT / Operating income	1.5%	3.4%

Consolidated key figures: IFRS statement of financial position (in thousands of €))	31/12/2010	31/12/2009
Fixed assets	188,301	192,034
Current assets	231,936	208,447
Statement of financial position total	420,237	400,481
Equity (incl. non-controlling interests)	138,714	125,148
Non-controlling interests	1,960	2,019
Liabilities	281,523	275,333
Statement of financial position total	420,237	400,481
Working capital	100,053	94,169
Net financial debt	66,796	92,195
Ratios
ROE (1)	2.0%	8.3%
Liquidity (2)	117.9%	118.6%
Solvency (3)	33.0%	31.2%
Gearing (4)	48.2%	73.9%

(1) ROE = return on equity (share of the Group + non-controlling interests).

= Group net result after taxes/ equity (share of the Group + non controlling interests).

(2) Liquidity = current assets / current liabilities.

(3) Solvency = equity (share of the Group + non-controlling interests) / total assets.

(4) Gearing = net financial debt / equity (share of the Group + non-controlling interests).

Photography: Michiel Hendryckx Design and printing: www.colorstudio.be

Publisher: The New Mile BVBA

PinguinLutosa NV Romenstraat 3 Westrozebeke (Staden) Tel. +32 (0)57/ 48 72 22 Fax +32 (0)57/ 49 06 80 Company number 0402.777.157 RPR IEPER

Website: www.pinguinlutosa.com

E-mail: investorrelations@pinguin.be

Contact: Steven D'haene +32 (0)56/ 62 27 41

Only the Dutch version is the official version. The French and English versions are translations of the original Dutch version. The consolidated financial statements 2010 are as well available in Dutch and French on our website www.pinguinlutosa.com.