Annual Report 2016 | 2017

FOR A NEW ERA

The liberalization of the sugar market in the EU on 1 October 2017 will lead to a fundamental change in Nordzucker’s world. We are starting the next chapter in our company’s history with a mixture of respect and confidence, as we have spent the last number of years carefully preparing our company for the challenges ahead – organizationally, financially and culturally. Whatever happens: Nordzucker is well prepared for the new era.

Ready for
a new era

The new market system will create new opportunities: In the future, there will be no restrictions on how much sugar can be exported from the EU. This means that prices will fluctuate more strongly and start to converge with the global market.

Executive Board
Ready for
a new era

WE HAVE PREPARED EXTENSIVELY FOR THE NEW ERA WHICH WILL BEGIN WHEN THE QUOTA SYSTEM COMES TO AN END.

Hartwig Fuchs
Chief Executive Officer

Left to right:

Dr Lars Gorissen

Chief Agricultural Officer

Member of the Executive Board of Nordzucker AG
since 1 March 2014

Hartwig Fuchs

Chief Executive Officer

Chairman of the Executive Board of Nordzucker AG
since 1 February 2010

Axel Aumüller

Chief Operating Officer

Member of the Executive Board of Nordzucker AG
since 9 November 2009

Dr Michael Noth

Chief Financial Officer

Member of the Executive Board of Nordzucker AG
since 16 August 2009

Letter from the Executive Board

Dear Shareholders,

In the 2016/2017 financial year, a positive price trend sparked an upswing in the market that we were able to exploit. Moves to step up our sales efforts on the one hand and extensive savings on the other helped us to continually increase our earnings over the twelve-month period.

This enabled us to report net income of EUR 99.1 million as against EUR 14.9 million in the previous year, a solid operating result of EUR 131.4 million compared with EUR 16.2 million for the comparative period, and sales growth of 6 per cent, bringing total sales to EUR 1,708.2 million compared with EUR 1,607.4 million in the previous year. Together with the Supervisory Board, we are proposing that the dividend be lifted back up to EUR 1.10 per share, compared with EUR 0.10 in the previous year.

Although the result is still down considerably on the outstanding level seen in the years prior to 2014, it is nonetheless pleasing because we were able to earn the cost of capital again and give our shareholders an appropriate share in our earnings. Shares in Nordzucker are worth the investment again.

We have prepared for the new era starting on 1 October 2017 and the end of the quota system. In doing so, we have already been able to demonstrate how well we can adapt to new conditions. The preparation process was extremely labour-intensive and called for a change of mindset, as well as for ideas and courage, in a large number of areas. We are certainly not yet perfectly positioned, but we have already achieved a great deal, and we will continue to work on improving ourselves.

Our business model is also fit for the future, which is why we are investing a considerable amount in our core business, primarily in the interfaces with our customers: logistics, loading, packaging and storage. After all, these are the areas in which we believe our particular expertise lie: in our ability to supply our customers reliably, flexibly and on time.

The second focal point of our investment activity relates to measures to boost our energy efficiency. The sugar production process is an energy-intensive one. Our energy consumption has a direct impact on our costs and our CO2 emissions. Our sustainability strategy aims to reduce both. Overall, we invested a total of EUR 84 million in our plants in the 2016/2017 financial year, a figure that will rise to EUR 87 million this year.

We are determined to continue optimizing our company so that it can deliver top performance. The targets we have set ourselves are ambitious: we want to boost our performance, cut costs, promote customer loyalty, increase unit sales, attract new customers, exploit export opportunities, improve our beet cultivation yields, and enhance and promote our attractiveness as an employer. In order to achieve this, we have launched numerous projects and measures and have a strong Nordzucker team that sticks together, maintains dialogue and is constantly developing – transcending national borders, factory fences and functional remits.

Nordzucker builds bridges between beet cultivation and the sugar market – between growers and consumers. We know that sugar prices will be subject to greater fluctuation in the future and that the world market price will dominate the EU price to an even greater degree. Dealing with positive and negative surprises and managing the resulting risks will be one of the challenges that we have to overcome.

The current 2017/2018 financial year will be one of transition. Due to world market prices that have, at times, been higher than the EU prices, sugar imports to the EU have been low in recent months. Nonetheless, the price level in the EU has only risen moderately. The new campaign will fire the starting gun for more intense competition in Europe. The area under cultivation has been expanded, which will – in the case of a regular harvest – result in excess supply. In addition, a number of EU countries are granting their beet growers subsidies that are distorting the competition, slowing down the process of consolidation – i. e. the process by which unproductive regions end up leaving the market – and, as a result, are running contrary to the actual objective, namely to put an end to the old system of regulation.

While EU protection against imports for sugar will not be affected, the maximum volumes for export will cease to apply. We will export in a structured way and in close relationships to our international customers and thereby we will create new sales opportunities. What is more, we offer our customers added value – be it in the form of service, advice, transparency, security or sustainability.

The changes in the market make it much more difficult to predict our future earnings. We expect the current stable market situation to persist until September, with the uncertainty mounting considerably from that point onwards. We should – assuming that nothing unforeseen happens – be able to achieve at least our current earnings of around EUR 100 million in this financial year, too, allowing us to strengthen our stable net assets and financial position even further.

In 2016/2017, we had an equity ratio of almost 65 per cent and only EUR 13.5 million in liabilities to banks as of the reporting date, with net capital investments of EUR 308.3 million and cash flow from operating activities of EUR 267.8 million.

The figures speak for themselves: we are a strong sugar producer in Europe. Our good financial position, well-equipped plants and close relationships with customers and growers alike are the advantages that we will be taking on to the competitive landscape as of October 2017. We will exploit changes in the market to our advantage by continuing to grow and investing in our factories based on market developments.

We would like to thank you, our shareholders, for the trust you have shown in us – and our employees for their tireless dedication.

Nordzucker AG
The Executive Board

Hartwig Fuchs
Unterschrift Hartwig Fuchs
Axel Aumüller
Unterschrift Axel Aumüller
Dr Lars Gorissen
Unterschrift Lars Gorissen
Dr Michael Noth
Unterschrift Lars Gorissen

Ready:
We are ready
to go!

The market:
WE ARE READY!

We know the market and can derive decisions from this knowledge.

In step

On 1 October 2017, the sugar market regime in its current form will be relegated to the history books. “This is just how it is. We have been adapting to the new situation for some time now”, explains Nordzucker CEO Hartwig Fuchs, emphasizing: “Our customers and competitors determine our business and plans – not political regulations. The market will now set the rhythm to a much greater extent than ever before.”

Knowing the market

The new market system will create new opportunities: in the future, there will be no restrictions on how much sugar can be exported from the EU. This means that sugar prices will fluctuate and global prices will start to converge. The global market will exert more of an influence over our business than ever before.

A large number of factors determine the world market price: these include global weather influences such as El Niño, as well as speculation in sugar trading. “We have to have all of these things on our radar. This is the only way in which we can plan and negotiate the right prices with our customers and beet suppliers”, explains Fuchs, adding: “We know the market and can derive decisions from this knowledge. This is a key factor in our success.”

TWO CONSECUTIVE YEARS OF DEFICITS ON THE GLOBAL MARKET.

We will be able to export our sugar without any limits.

Measured decisions

The end of the current sugar market regime is a paradigm shift that will change how we think and act within the company. We are continuously adjusting our sugar production from the time of cultivation until the sugar reaches the consumer. “Our strength lies in our ability to have an overview of the market as a whole and, most importantly, to base our plans on the market. We want to earn money for our shareholders and beet growers in the long term”, explains Fuchs.

Beet cultivation remains attractive

“Under the sugar market regime, the set minimum price made beet an extremely attractive crop for our farmers. This is a role that beet can continue to play. Admittedly, from the perspective of the growers, a few things have changed. There is less planning security because prices and volumes will now be subject to greater fluctuation. In order to make the new situation attractive for both sides, we currently also offer multi-year agreements in addition to other agreement models. These are proving very popular among our growers”, explains CAO Dr Lars Gorissen. In order to set appropriate beet prices, we take the prices of other crop plants into account, because beet competes with them for the farmer’s land. Developments on the sugar market are taken into account via the variable contractual models on offer.

The demand for organic sugar produced from sugar beet is also rising among our customers. This is why, for 2017/2018, we have once again concluded supply contracts with beet growers who will produce sugar beet in accordance with EU basic regulation on organic farming, or who are in the process of switching over their business.

Our sugar is in demand

Sugar produced from beet in Europe is attractive for European and multinational customers thanks to the high quality and sustainability standards that apply. “We can also offer our customers excellent service: varietal purity, advice on recipes and extensive logistics expertise for just-in-time transportation and storage are competencies that set us apart from the competition”, explains Fuchs, adding: “For years and years, we weren’t able to even think about exports. Now, new opportunities are appearing on the horizon.”

After all, in many regions of the world, sugar consumption is on the rise; the global growth rate is around 1.5 to 2 per cent a year.

Growth is out there

“We are currently looking into various opportunities to enter into cooperation projects or acquire companies outside of Europe, too, in order to achieve gradual growth”, explains COO Axel Aumüller, and Hartwig Fuchs continues: “Nordzucker will continue to develop over the next few years. The focus will be on activities outside of Europe because, while demand within Europe looks set to stagnate at best, demand is growing internationally. Africa and Asia are still very interesting destinations for us due to growing sales markets. And then there is Brazil – the largest and most efficient sugar production country.”

AFRICA AND ASIA ARE GROWING SALES MARKETS WHICH ARE VERY INTERESTING DESTINATIONS FOR US.

Hartwig Fuchs
CEO, Nordzucker AG

Finance:
Fundamentally solid

THE BASIC INFRASTRUCTURE IS EXCELLENT.

Satisfactory result for 2016/2017

After two weak years, Nordzucker was able to increase its net income for the period to just under EUR 100 million. “We have recovered to a level that we consider to be acceptable. Obviously, things aren’t as good as they used to be, but we can be satisfied”, is how CFO Dr Michael Noth describes the company’s results. The figures translate into a dividend proposal of EUR 1.10 per share. This means that, after low dividend payments of only EUR 0.10 over the last two years, shareholders will once again receive an adequate distribution. “This year, we were able to earn the cost of capital. This is important to us. With equity of more than EUR 1.3 billion in our company, we want to pay our shareholders a decent dividend; our solid financing also means that we can allow our shareholders to participate more in our results than they have done in the past.”, continued Noth.

OUR RESULTS WILL FLUCTUATE CONSIDERABLY FROM YEAR TO YEAR IN LINE WITH THE WORLD MARKET PRICE.

Dr Michael Noth
CFO, Nordzucker AG

Stable outlook

The current sugar market regime will continue to apply until 30 September 2017, meaning that the new 2017/2018 financial year will include a period with and a period without quotas. This makes results difficult to forecast. “We expect to see stable developments with reasonable prices until September. After that, we just have to see what happens. Given what is expected to be a good first half of the year, however, we believe that earnings that are at least on a par with the prior year at just under EUR 100 million are achievable, provided that we are not hit by any unforeseen effects”, is Noth’s cautious forecast. Any forecasts for the period beyond this point are difficult: “We are optimistic about the period following the end of the sugar market regime. But we have to expect greater volatility in the future. Our results will fluctuate considerably from year to year in line with the world market price. So we have to adapt accordingly.”

Further efficiency gains

“We launched our successful FORCE efficiency programme in good time and were already able to reap considerable benefits from the savings last year. A total of more than EUR 30 million was saved in the 2016/2017 financial year. We are working on reaching the EUR 50 million threshold as soon as possible. The more demanding the market and the more intense the competition is, the more important it is for us to cut our costs”, explains Noth.

Stable finances

In volatile markets, Nordzucker has to have a stable position to allow it to ride out difficult phases, too. “We think long-term. In our business, it makes no sense to think from quarter to quarter. We are proud of our equity ratio of almost 65 per cent and our substantial net fixed assets of more than EUR 300 million. We had a high cash flow of EUR 266 million in 2016/2017. We are therefore solvent and well financed. This allows us to fight back when times are tough”, continues Noth.

Ready for more

Nordzucker offers high-quality and sustainable products, as well as extensive services and solution-oriented advice. All areas of the company are well prepared for a future without quota restrictions. With good financial resources and a solid capital structure to back it up, the company will be able to continue to actively shape the European sugar market of the future. Noth finishes off by explaining: “Nordzucker has successfully dealt with all of the changes in Europe to date, and has emerged from them even stronger. We would like to thank our owners, because they give us the freedom we need to continue on the path we have carved out for ourselves and to achieve growth.”

Sustainability:
An extra something for our customers

WE CREATE ADDED VALUE ALONG THE VALUE CHAIN.

Something extra to offer our customers

It might always be sweet, but not all sugar is alike. We enhance it with our specialized knowledge and assume responsibility from the time of cultivation until the sugar reaches the consumer. Chief Operating Officer Axel Aumüller explains: “We are transparent and produce sustainably (in accordance with both German and European standards) and regionally.”

Turning beets into gold

When it comes to sustainable beet cultivation, we have set the bar high, as the SAI (Sustainable Agriculture Initiative) has once again confirmed. In order to achieve this, all locations are evaluated based on the SAI’s Farm Sustainability Assessment (FSA). This approach ensures sustainability from the field to the customer and is a pioneering development in the sector.

Up with yields – down with fertilizers

Sugar beet offers potential. It stands out due to its long-term prospects of further yield increases, reducing costs and any environmental impact at the same time. For example, it is much more environmentally friendly to transport beet with a high sugar content because this results in less water being transported. When it comes to yield increases, our cultivation advisers play a key role. This is because better yields are achieved through better cultivation techniques. The use of nitrogenous fertilizer has been strongly reduced while yields have been significantly raised over the same period. This results in much better nitrogen efficiency.

Sugar beet is an environmentally friendly crop

As a root crop, sugar beet forms a key part of the annual crop rotation that protects the soil and promotes species preservation. For this reason alone, sugar beet is an indispensable feature of Europe’s agricultural sector in its core regions.

Saving energy – cutting CO2

A key component of our sustainability drive lies in considerably reducing our energy consumption and CO2 emissions. “Since 1990, we have reduced our energy consumption by more than 45 per cent and our CO2 emissions by almost 60 per cent”, says Axel Aumüller. The new objective is to reduce the energy consumption per tonne of sugar by 10 per cent as against 2014 – which would then equate to a 50 per cent reduction since 1990 by the year 2020. Nordzucker is also looking into the options available for using renewable energy. The emissions target is also a 10% reduction in 2020 compared to 2014 which is 68 per cent less than in 1990.

ENERGY AND CLIMATE TARGETS ACHIEVED – NEW TARGETS SET

Little water – no waste

Our sugar plants cover 90 per cent of their water requirements themselves. Since sugar beet is 75 per cent water, we extract this water and use it in our plants, where we recycle it up to 20 times. All components of the sugar beet are transformed into useful by-products in the production process, including animal feed and molasses. The soil and stones from the beet are used as construction materials and any lime as lime fertilizer.

Sugar is a pleasure

The public debate often links sugar to obesity or illnesses like diabetes. “If we consume more calories than we burn, we gain weight But that’s never down to one specific food or ingredient like sugar. Each individual has to be able to decide for themselves what they like and what foods they want to enjoy”, explains Axel Aumüller.

Sustainable by nature

“Sustainability is a matter of course for us. Companies can be very successful financially by pursuing objectives that make sense from a social perspective”, says Hartwig Fuchs. Nordzucker’s business model, which is now more than 175 years old, focuses on the long term. “Beet cultivation and handling in the regions where we produce forms the basis of our business. This is the general philosophy we want to use to achieve further growth. One of our top priorities is to ensure that new business models always meet our requirements in terms of sustainability, particularly as far as working conditions and environmental protection are concerned”, says Fuchs.

Company Sharing knowledge

WE ARE A STRONG PERFORMER IN THE NEW SUGAR MARKET.

Moving closer together

Nordzucker’s growth over the course of decades is the result of the merging of many small sugar plants, a process that has made the company increasingly European. When it became clear that a freer market was inevitable, the question arose: how does a company adapt if it wants to be flexible and agile enough – for both its clients and to hold its own in the competition.

“It was clear that we would have to move closer together and that Nordzucker would have to become one team. Today, I can say that we have come a long way”, says Hartwig Fuchs, adding: “We stand united internationally as one team and can offer our customers both local and global contacts.”

We are prepared

“We are looking forward to the new market structure, the challenges of the competition and the opportunities that will arise for us”, says Dr Michael Noth. “We have laid a good foundation: the organization is effective, we have solid finances and a strong, highly motivated team.”

It was also necessary to redefine the company’s relationship with beet growers. Dr Lars Gorissen explains: “The quotas created fixed ties. From growers’ perspective, the beets were a safe bet. All in all, however, this made the whole relationship very static. Things have changed now. We have to be active and agile players on the competitive landscape and direct contact with growers is more important than ever before”.



Improving our processes

“For as long as the sugar industry has existed in Europe, the industry has been improving its processes. This is something of a tradition at Nordzucker. “The most important thing is to be fast, to be prepared to learn new things and make decisions. We have a rock-solid foundation: modern plants, good growing regions, solid finances, long-term customer relationships and a wealth of expertise.”, explains Axel Aumüller.

THE MOST IMPORTANT THING IS TO LEARN NEW THINGS AND MAKE DECISIONS.

Axel Aumüller
Chief Operating Officer

Experts on the market

Represented in a large number of countries and equipped with first-rate knowledge: this is how Nordzucker presents itself on the market. “We are really reaping the benefits from our efforts to move closer together internationally in recent years. This cultural and interdisciplinary dialogue is one of the key prerequisites for our flexibility and further development”, explains Hartwig Fuchs. In particular, market-oriented production planning was further developed. “Without the prescribed quotas, we will have to decide for ourselves how many beets our farmers should grow. This planing process takes place across all areas in a highly professional manner and is extremely well organized”, says Fuchs, “even if there are still improvements to be made”.

WE ARE RISING TO THE CHALLENGES OF THE COMPETITION.

Dr Michael Noth
Chief Financial Officer

Sugar specialists

Nordzucker offers customers real added value, be it thanks to customized logistics, transparency in the manufacturing process, deliveries that meet specifications, impressive quality or the company’s knowledge of sugar as an ingredient in customers’ recipes. As far as beet growers are concerned, the focus is on providing advice. “As well as offering conventional cultivation advice, we are also on hand to assist with business-related matters, to explain the cultivation agreements and help with cultivation planning”, says Dr Lars Gorissen. The aim is always to be an equally good partner to both growers and customers. “We expect a lot of our employees: they have to share specialist knowledge, seek direct contact with customers and farmers and be clear and open in the way they communicate – that’s what our philosophy is all about”, emphasizes Hartwig Fuchs.

DIRECT CONTACT WITH GROWERS IS MORE IMPORTANT THAN EVER BEFORE.

Dr Lars Gorissen
Chief Agricultural Officer

No time to rest on our laurels

Nordzucker is ready – even if action still needs to be taken here and there. “But that doesn’t mean that we can now just sit back. Markets change and technical developments such as the digitalization in beet cultivation, in production or in logistics are progressing well. New investments due to environmental or customer requirements are presenting us with new challenges day in, day out”, says Fuchs. With the help of a clear customer focus and a healthy awareness of efficiency and profitability, Nordzucker is extremely well prepared.

WE STAND UNITED INTERNATIONALLY AS ONE TEAM.

Hartwig Fuchs
Chief Executive Officer

Values:
SUCCESS IS IN OUR GENES

OUR FOUR VALUES FORM THE BASIS FOR ALL CHANGE PROCESSES.

Always there in the background

Our four corporate values – courage, dedication, responsibility and appreciation – form the basis for the decisions we make, the way in which we work and how we address the market.

“Sometimes, our values crop up completely unexpectedly, for example during a discussion or a decision-making process. They also draw our attention to aspects we had not yet considered”, emphasizes Dr Michael Noth. And Hartwig Fuchs adds: “It is especially worth noting that these values were not prescribed by the Executive Board, but rather were discussed and defined by the employees themselves.”

Canon of values

The interplay between the values is important. “The individual values can only develop their potential and act as meaningful guidelines as part of a canon”, explains Dr Lars Gorissen. For example, it’s one thing making courageous decisions. But being aware of one’s responsibility and the implications of the decision at the same time is another. “In our international group, a high degree of standardization and uniform action that transcends national boundaries are important aspects”, says Dr Michael Noth. “Our values help us to be faster and less bureaucratic.”

Dedication

At Nordzucker, dedication to the company also means accepting challenges and being open to change. This applies in relation to the campaign, innovative projects, addressing future trends or when dealing with requirements of customers, residents or beet suppliers.

Responsibility

Responsibility implies an obligation for Nordzucker, society and the environment. This means thinking and acting in the long term, making sound business decisions and taking responsibility for the motivation, safety, health and well-being of employees and colleagues.

Courage

“Courage is about daring to take calculable risks.”, explains Hartwig Fuchs. “This is closely linked to being tolerant of mistakes. If, for example, something goes wrong with the campaign during a night shift, employees have to take fast, dedicated and – the magic word – courageous action when it comes to deciding what to do next. We give them a great deal of responsibility in cases like these, because we trust our people”, says Axel Aumüller.

Appreciation

Appreciation lays the foundation for good collaboration. “That means listening, understanding and taking time, be it for colleagues, employees, managers but also for customers and suppliers”, emphasizes Hartwig Fuchs.

WE GIVE A GREAT DEAL OF RESPONSIBILITY BECAUSE WE TRUST OUR PEOPLE.

Axel Aumüller
Chief Operating Officer

KEY FIGURES Nordzucker
at a glance

Sugar has been produced from sugar beet in Europe for more than 200 years. Nordzucker is part of this tradition, having manufactured the highest quality sugar since 1838, and is now Europe’s second-largest sugar producer. Our 3,200 employees at 18 sites in Europe provide the food i ndustry, retailers and consumers with reliable supplies of top-quality products. As a food manufacturer, thinking and acting in a sustainable manner is something we do as a matter of course. Ecological and social factors are an explicit part of our decision-making.

Zuckererzeugung Nordzucker Konzern
Konzernumsatz

million
Euro net income

0 Euro
per share
(proposal)

million
Euro cash flow from operating activities

%
equity ratio