Letter to the shareholders
Current information for the shareholders of Nordzucker AG and Nordzucker Holding AG and for partners of Union-Zucker SĂźdhannover GmbH Issue 03 | 20 December 2016
Dear shareholders, 2016 is drawing to a close and so is this year’s campaign – the last campaign run under the old sugar market regime. Following a difficult year we can finally say that revenues and earnings have performed well over the last few months, that we correctly gauged the market situation, that our comprehensive measures to reduce costs and increase efficiency are gradually paying off and that we have promptly concluded contract negotiations with beet farmers in all countries for the coming year, giving both us and the farmers planning security. We will build on this in the upcoming negotiations and are bound to reassess some of the details based on the experience that we gain.
Positive performance World market prices for sugar increased significantly over the last few months due to lower production volumes caused in part by weather conditions. They are now, however, unfortunately showing significant weakness once again. There was a global production deficit in 2015/2016 and we calculate that global production will once again be below the level of consumption in 2016/2017. The price and volume trends on the world market and the lower stocks in the EU have also helped to stabilize prices in our markets. We benefited greatly from this general market development and as a result reported good earnings overall in the first half of 2016/2017. Stabilized market prices and a positive trend in sugar sales, in particular, have led to greater revenues and a considerable year-on-year increase in net income. The Nordzucker Group generated revenues of EUR 833.1 million in the first six months of the 2016/2017 financial year. This represents an increase of around 8 per cent on the same period in the previous year. The company also generated an excess amount of EUR 37 million, having reported a loss of EUR 0.6 million in the same period of the previous year. Income from animal feed and bioethanol remained below expectations, however. Prices for these products are now under considerable pressure, which has a corresponding effect on the margin. Nordzucker AG l Post box 49 21 l D-38039 Braunschweig l Telephone +49 531 2411-0 l ir@nordzucker.de l www.nordzucker.de
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Positive outlook We can be extremely satisfied with the current state of business and expect to close the current financial year with higher revenues and significantly improved earnings. The savings achieved by our efficiency programme FORCE will also make a contribution. Forecasts for 2017/2018 are much more difficult. The market will have to find a new equilibrium after the quota regime expires on 30 September 2017. Potential imports and exports and any additional capacity planned by our competitors will play an important role. This is extremely difficult for all market players to predict from today’s perspective. Our main objective is to continue to achieve adequate sugar prices in the market. We do not consider overproduction to be worthwhile. At the same time we realize that the international prices are very far from their high point in October 2016, and that in raw sugar they have dropped by more than 20 per cent. Even though supplies within the EU will, statistically, remain relatively low until the end of the sugar market regime, world market prices will have a very large impact on EU prices from October onwards.
Cultivation agreements in place We have signed contracts with farmers in all of the Nordzucker countries for the 2017 growing year. As a part of the discussions, we made choice models available that enabled farmers to choose between variable and fixed, and long-term and short-term models. We are happy to report that we already have contracts in place for around 27 per cent of the demand for 2018/2019 and 2019/2020. The free volumes in Germany not associated with supply rights, which account for around 20 per cent of the entire supply of beet in Germany in 2017, were also drawn up in full. It is clear when considering some of the details that there is additional need for improvement in order to ensure optimal supply to all of our plants in the coming years.
The campaign met our expectations We are expecting above-average sugar yields in all countries following this year’s campaign due to the overall excellent growth of sugar beet. The weather conditions experienced during the campaign have thus far not led to any diminished yields. The running of our plants also went smoothly and no major technical problems occurred. We calculate a Group average of 104 processing days compared to 97 days in the previous year. The campaign will be completed by the new year at most plants.
Closer focus on improved earnings We are keeping our eye on the goal of harvesting 20 tonnes of sugar per hectare with 20 per cent of the best farmers by 2020. Efficient and profitable beet cultivation will contribute substantially to our competitiveness once the market is liberalized in 2017. We are therefore putting a lot of work into early sowing, well-placed fertilization, mechanical weed control, beet under fleece and plants, avoiding root rot and the equal-space narrow-row method.
Nordzucker AG l Post box 49 21 l D-38039 Braunschweig l Telephone +49 531 2411-0 l ir@nordzucker.de l www.nordzucker.de
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Nordzucker gets into organic sugar production There is increasing demand for organic sugar produced from locally grown sugar beet. This market trend has encouraged us to commission organically grown sugar beet starting in 2017. The greatest potential and the best conditions for organic beet cultivation can be found in Germany and Denmark. We therefore want to contract as many organic beet producers as possible in 2017. We have already informed potentially interested farmers about the conditions and key contractual information by speaking to them both directly and at regional events, and by communicating with associations and organic farmers via newsletter. Our offer takes the overall additional expense of ecological production into account and has generated a great deal of interest in both countries.
Sustainability website now also in German Both national and international customers follow news of our sustainability efforts with great interest. After all, sustainably produced sugar, a transparent supply chain from field to customer and verifiable results also count towards our customers’ sustainability strategies. We have been a clear front runner in this area for many years. On our website we have set up a platform providing data, facts and examples that make our involvement throughout the value chain transparent. This platform highlights our ambitions to reduce energy consumption and CO2 emissions, and provides information on our social commitment and our productive cooperation with beet farmers. The close dialogue with all of the partners in the value chain, from growers to consumers, forms the core of Nordzucker’s sustainability approach, which is also reflected in the “Growing together” motto. Come visit us at http://sustainability.nordzucker.com to find out more.
The market will determine the path we take The lack of regulation on production volumes opens up plenty of opportunities for us in the market. We know that the market will see further consolidation and we are in a good position to benefit from that. Our solid finances, the excellent location of our production facilities and growing regions, and our efficiency gained from years of work, will enable us to actively participate in the upcoming consolidation of the EU sugar market and to tap into new markets. In the future, customers and markets outside of the EU will be very significant for us, both in terms of exporting and in working in collaboration with local suppliers. The market and trends, which are determined by our customers and by consumers, set out our path for us. It is a path that we want to take with you, our shareholders, by our side. Let’s make Nordzucker strong.
Nordzucker AG The Executive Board
Nordzucker AG’s Interim reports 2016/2017 can be found online at: http://www.nordzucker.de/en/shareholders/service-contact/downloads/interim-reports.html
Nordzucker AG l Post box 49 21 l D-38039 Braunschweig l Telephone +49 531 2411-0 l ir@nordzucker.de l www.nordzucker.de