8 NORDZUCKER ANNUAL REPORT 2013/2014 : Sugar has a future SUGAR HAS A FUTURE 8 FUTURE ISSUES Sugar has a future : NORDZUCKER AnnUAL REPORT 2013/2014 9 1 2 3 Strategy Optimised beet cultivation Sugar beet is the future THE NEW WORLD 20 TONNES OF SUGAR “SuGAr BeeT OF SUGAR PER HECTARE DON’T IS A WINNER Page 10 JUST FALL FROM THE SKY FOR US” Page16 Page 20 4 5 6 Investments Production Health and nutrition Sustainability MASTER OF SUGAR IN ANd ProFITABILITy A COMPLEX THE MEDIA HAND IN HAND PRODUCTION Page 36 Page 26 MACHINE Page 30 7 8 Quality management Sales H OW VALUES CUSTOMER Become ORIENTATION AND STANDARDS A WILLINGNESS Page 40 TO TALK Page 44 10 NORDZUCKER ANNUAL REPORT 2013/2014 : Sugar has a future THE NEW WORLD O F In 2017 SUGAR the sugar market regime will expire after more than 45 years. FOCUSSED ON THE FUTURE The SMR will expire in 2017. But what’s next? We are looking to the future with confidence. Sugar has a future : NORDZUCKER AnnUAL REPORT 2013/2014 11 STRATEGY HARTWIG FUCHS: “ STRENGTHENING NORDZUCKER By LookING To THe FuTure” For decades, the sugar market regime, or SMR, has been the cornerstone of the European Union’s sugar market. At the end of September 2017, the SMR in its current form will expire. There will then no longer be a quota regulation restricting quantities, no compulsory minimum beet prices nor export restrictions. How will Nordzucker meet these changing market condi- tions? What will the future market look like? And, above all, what will be the opportunities and challenges for Nordzucker? We asked Hartwig Fuchs, CEO of Nordzucker AG, for his thoughts. “ There will be a number of changes in the European sugar market in the coming years. The com- petition will grow stronger, and the influence of the global market, with its greatly fluctuating sugar prices, will also increase. This scenario translates into the following three developments: Firstly, there will be regions where beet cultivation will not be as profitable in comparison to that of other crops, e.g. wheat, oil seed and maize; secondly, smaller producers will increasingly experience difficulties in investing in their competitiveness. Both trends will mean a decline in sugar production in these areas. Thirdly, it will also result in production increases – particularly in regions where, in Europe, beet cultivation and sugar production is especially competitive. Our competitors will optimise the capacity of their facilities, thereby creating a surplus of sugar on the European market. In addition, the volumes of isoglucose produced will increase in Europe after 2017. Because when the quota for sugar expires, so, too, will the quota for isoglucose. Since isoglucose could be used as a substitute for sugar in a number of products, it will be in competition with sugar for some customers after 2017 and further increase the impending market surplus. At the same time, sugar consumption in Europe is stagnating. The increased FACTS AND FIGURES production and the availability of isoglucose will affect prices. And we must be prepared for ON THE SUGAR MARKET that. As one of the large producers in Europe, however, we are in a strong position, and we will REGIME use this to our advantage. It will, however, become very difficult for smaller companies, and we will see a new wave of consolidation. > 1968: The sugar market regime comes into force A STRONG COMPANY MUST GROW > Legal basis: Directive no. 1009/67/EEC The pressure of competition is growing, so, too, the pricing pressure and, at the same time, > Content: Quota regulation our employees expect higher wages and salaries, shareholders an attractive dividend, and beet and minimum beet price suppliers an appropriate price for their beet. Only through growth can we meet all of these > Most recent fundamental challenges and increase company value. For more than 175 years, Nordzucker’s success story reform: 2006 – 2009 has been closely linked to its growth, first in Northern Germany and later in Europe. There > Sugar market regime expires: have always been voices urging caution, and never to spend money. And many people were 30/9/2017 of the same opinion concerning the acquisition of Nordic Sugar. But without risk, we will not > 85 %: Current proportion of sugar be able to grow, and if our predecessors had not taken well-calculated risks, Nordzucker would that the EU supplies for itself probably not exist at all. To emphasise once again, the market in europe is not expected to 12 NORDZUCKER AnnUAL REPORT 2013/2014 : Sugar has a future Sugar consumption in Asia 2012/2013 77 MILLION TONNES 16 MILLION TONNES At least Sugar consumption 6 – 8 in Africa 2012/2013 PROZENT cent economic growth for the year Source: OECD grow. At the same time, existing sugar consumption will be partly substituted by isoglucose, and growth through takeovers is a difficult enterprise given competition law. The harsh reality is that we will have to extend our sphere of business beyond europe’s borders and generate part of our revenues from outside europe in future. That is the logical next step. Africa, Asia and the Middle East are the growth regions of the future for sugar. With strong population growth, six to eight per cent economic growth per year has been forecast for many countries in these regions. And economic development also always means a higher standard of living, which is reflected first and foremost in eating habits – and this means higher sugar consumption. We need to look ahead here and, while maintaining a sense of the realities, a healthy dose of responsibility courage is required, as the conditions in these countries are very different to those in europe. Together with our Supervisory Board, we have made a clear deci- sion to closely review growth options outside of Europe, including on the African continent. This is an important and appropriate step for our future. FOCUS ON REGIONAL MARKETING We will, however, not be going into other areas to produce sugar for our European market. Our focus has always been on regional marketing and the local production of sugar. We pro- duce locally, near to the consumer. We intend to operate sustainably, monitor the process chain and serve a local market. We will invest with good judgement and observe international corporate social responsibility standards as a matter of course, which means ensuring that our projects are socially anchored in the local community. All our plants, including those in Europe, are in rural areas where we are an important economic factor for communities, for agriculture, for our employees and for supplier farms. This is an important asset for us. Taken 16.9 further, this principle also applies to future activities in Africa or Asia. If we produce sugar from cane in Africa or India in the future, for example, we provide added value for that country, in MILLION TONNES order to meet demand locally, build infrastructure there and take on staff. It is about opening up future sugar markets that have growth potential, and about supplying the customers there Average annual with locally produced sugar. Our activities outside of Europe will definitely not be in competi- quantity of sugar production in the EU tion with beet at home. And yes, of course we want to make money and reinvest these gains, or pass them on to our shareholders. Sugar has a future : NORDZUCKER AnnUAL REPORT 2013/2014 13 “ EVEN IF WE SHOULD PRODUCE SUGAR FROM CANE IN AFRICA IN THE FUTURE, OUR STRATEGY CONTINUES TO FOCUS ON PRODUCING LOCALLY AND MARKETING REGIONALLY. ” Hartwig Fuchs is clearly committed to beet and to the region ISOGLUCOSE IS NOT AN ALTERNATIVE FOR US AT PRESENT At present, we do not see isoglucose as an alternative to locally produced sugar from beet. As the quota for isoglucose will also be expiring, the volume of isoglucose produced in europe will rise after 2017. In my view, however, isoglucose has several disadvantages compared with beet sugar, which prevent us from moving into this area. Firstly, isoglucose is ideally based on maize – maize that would be grown in Hungary, Serbia, romania or Bulgaria. This would mean higher freight costs – either for the raw material or the product – not to mention that the ‘regional approach’ would be missing from the product. This is a principle which we will continue to stand by in the future. Of course, wheat can also be used to produce isoglucose, but I see here a moral problem: can there really be a justification for taking food grain for isoglucose production when it could be raw material for the mills and bakeries of egypt, Syria, Iraq, or the poorer countries of Africa experiencing chronic malnutrition? on a personal level, too, I just don’t like the taste of isoglucose. Nordzucker, therefore, currently has no plans to move into this area. In my view, this is absolutely no alternative to sugar in terms of taste, usability and sustainable production. 14 NORDZUCKER ANNUAL REPORT 2013/2014 : Sugar has a future Streamlined processes and refi ned logistics make Nordzucker ready for the future. WE NEED TO THINK IN TERMS OF THE MARKET To remain competitive in the future, we need to change the way we think within the company. Nordzucker will become a company that is oriented towards the market and the customer. To this end, we will turn the process chain on its head and think more in terms of the customer in future. For more than 175 years, our thinking has centred on beet cultivation and production, i.e. how much beet we have, how much plant capacity are we using, and how much sugar can we produce from this? Today, the question is how much sugar can we sell for a given price, how much of it can we produce ourselves and how much land do we need for this amount of beet? The customers will expect Nordzucker to be more flexible in meeting their demands, and not just in terms of quantities and prices.