Annual Report Nordzucker AG 2015/2016 - May 2016

SHAPING THE TRANSITION A N N UA L R E P O RT 2 0 1 5 / 2 0 1 6

N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

E M PLOY E E S I N T H E F I N A N C I A L Y E A R

PROPOR TION OF WOMEN EMPLOYED

( ANNUAL AV E R AG E )

(PERMAN EN T S TAF F )

2015/16

2014/15

2013/14

2016

2015

2014

Total company

3,206

3,284

3,278

Germany

1,262

1,264

1,252

Total company

21.5 %

21.4 %

21.4 %

Germany

18.9 %

18.8 %

Denmark

487

501

18.9 %

523

Denmark

24.0 %

25.3 %

Sweden

395

25.1 %

439

433

Sweden

24.6 %

24.2 %

25.3 %

Poland

332

339

334

Poland

14.2 %

14.1 %

12.8 %

Finland

273

286

287

Finland

19.9 %

20.6 %

20.8 %

Lithuania

246

258

253

Lithuania

22.9 %

24.7 %

23.0 %

Slovakia

196

182

182

Slovakia

35.7 %

29.9 %

30.3 %

Ireland

11

11

10

Ireland

50.0 %

45.5 %

45.5 %

Latvia

4

4

4

Latvia

100.0 %

100.0 %

100.0 %

PE R IO D O F E M P LOY M E N T I N Y E A R S

EMPLOYEES BY AG E G ROUP

( PE R M ANE N T S TA F F )

(PERMAN EN T S TAF F )

2016

2015

2014

> 35

13.3 %

12.1 %

10.7 %

> 60

2016

2015

2014

8.8 %

7.6 %

6.7 %

26 – 35

23.8 %

24.7 %

25.4 %

16 – 25

17.4 %

19.0 %

19.1 %

51 – 60

38.2 %

38.8 %

38.7 %

41 – 50

26.6 %

28.5 %

6 – 15

26.5 %

26.0 %

29.8 %

24.2 %

31 – 40

15.9 %

15.1 %

0 – 5

19.0 %

18.2 %

15.0 %

20.6 %

up to 30

10.6 %

9.9 %

9.7 %

N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

RE V E N U E S

in EUR m 2,443

2,500 2,250 2,000

2,361

2,018

1,866 1,607

1,750 1,500 1,250 1,000 750 500 250 0

2011/12

2012/13

2013/14

2014/15

2015/16

20

15

2014/15

2015/16

0.10

0.10*

2014/15

2015/16

N E T I N CO M E

in EUR m

400

369*

350 300 250 200

209

208

150 100 50 0

2011/12

2012/13

2013/14

* adopted

DIVIDEND PER SHARE

in EUR m

1.80

2.00 1.50 1.00

1.30

1.00

0.50 0

* proposal

2011/12

2012/13

2013/14

GROUP FIGURES

NORDZUCKER – K E Y F I G U R E S AT A G L A N C E

Y IE L D R AT I O

2011/12

2012/13

2013/14

2014/15

2015/16

18.4

24.3

20.0

7.5

5.6

%

10.1

14.7

8.5

1.1

1.0

%

20.4

27.8

14.5

1.6

1.2

years

0.6

0.1

– 0.1

– 0.3

– 1.8

Cash flow from operating activities per share

EUR

4.59

6.49

5.90

2.79

4.11

Earnings (Group) per share 5

EUR

4.22

7.44

4.17

0.43

0.32

EUR

1.00

1.80

1.30

0.10

0.10*

EUR m

48.3

86.9

62.8

4.8

4.8*

Total operating profitability 1

%

Return on revenues Return on equity 3

2

Redemption period 4

Dividend per share 6 Total dividend 1 EBITDA/Total revenues 2 Net income/revenues 3 Net income/equity

4 Net debt/EBITDA 5 T otal income/number of shares 6 Total dividend/number of shares

* proposal

K E Y FINAN C I A L F I G U R E S

2011/12

2012/13

2013/14

2014/15

2015/16

Revenues

EUR m

2,018

2,443

2,361

1,866

1,607

EBITDA

EUR m

420

594

472

140

90

EBIT

EUR m

315

506 *

299

26

16

Net income

EUR m

208

369 *

209

20

15

Cash flow for/from operating activities

EUR m

222

313

285

135

199

Investment in property, plant and equipment and intangible assets

EUR m

64

74

79

82

60

2011/12

2012/13

2013/14

* adopted

BAL AN C E S H E E T RAT I O AT T H E E N D O F T H E F I NAN CIAL YEAR

2014/15

2015/16

Balance sheet total

EUR m

2,262

2,403

2,337

2,144

2,013

Equity

EUR m

999

1,291

1,386

1,272

1,278 64

Equity ratio

%

44

54

59

59

Financial liabilities

EUR m

256

71

6

7

7

Cash and cash equivalents

EUR m

7

11

58

45

172

Net debt1

EUR m

249

59

– 52

– 37

–164

1 Cash and cash equivalents – Financial liabililties

BE E T C ULTI VAT I O N A N D C A M PA I G N

Beet farmers Beet cultivation area Beet processing Sugar production

2011/12

2012/13

2013/14

2014/15

2015/16

15,379

14,981

14,761

14,482

14,301

ha

265,947

265,904

241,000

242,000

191,000

t/day

143,520

138,797

143,236

146,194

142,605

millions of tonnes

2.91

2.80

2.50

2.91

2.0

Shaping the transition : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

SHAPING THE TRANSITION Nordzucker is in transition towards a new era. The expiry of the sugar market regime in 2017 will change the market considerably.

Nordzucker will be faced with new challenges and new opportunities.

Various preparations for this new era are under way in all areas of the company.

Hartwig Fuchs:

Dr Michael Noth:

‘We have initiated pioneering measures that will enable the successful transition to 2017. This includes creating a Nordzucker identity that spans countries, and that is actively lived by every employee across the entire Group. And part of this entail focussing on the market – our entire planning adopts a market p ­ erspective and is based on our estimation of how much of which product can be sold on the market at what price. We will continue to put all of our energy into working on these two issues.’

‘We are extremely well equipped. In terms of ­capital, we are very well equipped. We have no debts. Thanks to our Profitability plus and FORCE projects, we have made continuous efficiency gains, and we can play an active role. But we should also be very grateful to our shareholders. Because they were the ones who decided to take a great step forward with the ­acquisition of Nordic Sugar. That was a clear sign of confidence in the company, which is very important for us.’

Axel Aumüller:

Dr Lars Gorissen:

‘In Production, we are very well set up for these changes, which means, above all, that we are flexible.

We are one of the few companies with many years’ experience of campaigns lasting 120, 125, 130 days or longer on average across all our plants in the various countries, but we can also do shorter campaigns – it all depends on what is needed.’

‘Our focus is now already on the period after the 2017/2018 financial year. There will be two main elements to the contracts with beet farmers in future: volumes, which in Germany are linked to delivery rights and thereby to shares, and of course the prices.

The key message to our farmers is as follows: we are not just focused on volumes, but first and foremost on the market.’

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N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Shaping the transition

CONTENT 1 ­N O R D Z U C K E R A T A G L A N C E Key figures

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28

SHAPING THE TRANSITION

GROUP MANAGEMENT REPORT

6 � Letter from the Executive Board 10 � Nordzucker in transition – Prepare, shape, seize opportunities 18 � A closer look at markets, customers and trends 20 � Hand in hand for more efficiency in sugar beet farming 24 � The winds of change

0 3 34 35 38 39 39 40 41 45 45 46 46 48 56 56

� ­Nordzucker at a glance � Macroeconomic situation � The sugar market � Market for animal feed and molasses � Market for bioethanol � Market for sweeteners � Beet cultivation and sugar production � Earnings, net assets and financial position � Capital expenditure � Financing � Dividend � Employees � Opportunities and risks � Supplementary report � Forecast

Photo: Szymon Kusmierek

Shaping the transition : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

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110

C O N S O L I DAT E D F I N A N C I A L S TAT E M E N T S

F U R T H E R I N F O R M AT I O N

60 60 61 62 64

� Consolidated income statement � Consolidated statement of comprehensive income � Consolidated cash flow statement � Consolidated balance sheet � Consolidated statement of changes in shareholders’ equity 65 � Notes to the consolidated financial statements 109 � Audit opinion

112 � Corporate Governance Report 115 � Statement of compliance with German Corporate Governance Code 116 � Report by the Supervisory Board 122 � Glossary 126 � Financial Calendar

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足N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Executive Board

SHAPING THE TR ANSITION

Dr Michael Noth and Hartwig Fuchs (Chief Executive Officer)

Executive Board : N 足 O R D Z U C K E R A N N U A L R E P O R T 2015/2016

Axel Aum端ller and Dr Lars Gorissen

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­N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Letter from the Executive Board

DEAR SHAREHOLDERS,

We have a very challenging year behind us, which we were nonetheless able to close with a slight profit – in contrast to our original expectations. A number of factors contributed to this result, including our decision not to accept extremely low prices and rather to reduce the amount of land planted with beet. Our efforts as part of the FORCE programme to improve the cost situation also delivered initial results; the marketing of bioethanol gave us better prices than planned and extraordinary income such as the successful conclusion to the long-standing legal dispute about the production levy helped us to achieve these earnings.

Thanks to a slight improvement in sugar prices, caused by developments on world markets and on reductions in land under beet in the EU, we were able to demand slightly higher prices at the end of the 2015/2016 financial year. Group revenues were down by almost 14 per cent overall however, following a fall of nearly 20 per cent the previous year. With an operating result of EUR 16.2 million, compared with EUR 26.0 million the previous year, and net income of EUR 14.9 million, compared with EUR 20 million the previous year, our earnings position is by no means satisfactory. Given the outlook at the beginning of 2015 we are nonetheless proud of this result and this year we can distribute a dividend of EUR 0.10 per share, which is the same as last year.

EARNINGS IMPROVEMENT EXPECTED FOR 2016/2017

In contrast to the general trend in agricultural markets, with prices falling in almost all segments, the sugar market put in a slightly positive performance in recent months. This is due above all to the expectation of a global production shortfall. Stock levels, which remain high worldwide, still put a cap on these price developments, however. Reducing land under beet in the last European campaign brought stocks back down to more normal levels, however.

Compared with prior years the volume of imports is forecast to be slightly lower, but supplies in the EU market are secure, as is obvious from the flat prices reported to the EU. Pricing pressure also increased as a result of greater competition among EU sugar producers who are striving to hold their market share ahead of the liberalization on 1 October 2017.

Weighing these developments, some of which offset one another, we now expect revenues for the current financial year to be on par with the previous year. Our earnings should be significantly higher than the current figure, however, thanks to the cost savings made as part of our FORCE programme, relatively low energy prices and slightly higher sugar prices.

Letter from the Executive Board : ­N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

A T T R A C T I V E C O N D I T I O N S F O R B E E T C U L T I VA T I O N , E V E N A F T E R 2 0 1 7

Our analysis now goes well beyond the year 2017, when the sugar market will enter a new era. There will be major changes, both in terms of beet purchasing and sugar sales. We are therefore currently negotiating with our farmers about future contracts in which volumes and prices are no longer dictated by the sugar market regime, but by demand and prices on the sugar market and the prices of alternative crops. We are on the right track here in all countries and intend to offer competitive terms for beet farming in the future too. After years of regulation, everyone involved now has to rethink. Sugar beet will still be an attractive element of crop rotation, however, and will keep its place. Despite this, we view the announcements of new land being given over to beet with scepticism. Our approach remains initially to stabilize the beet price at a level that ensures farmers predictable and adequate income, ideally for several years. Expanding land under beet simply for the sake of it will lead to lower beet prices as the EU will produce more sugar after 2017 than can be sold within the common market.

Beet prices that are too low, however, throw into question the regional production of locally grown sugar in the longer term and therefore also our business model of a sustainable value chain from the farmer to the consumers. We will therefore proceed cautiously with the issue of ‘land expansion’ in the future.

“ W E A R E C O N V I N C E D T H AT W E W I L L H AV E TO M A K E T H E E N T I R E C O M PA N Y E V E N M O R E F O C U S E D ON CUSTOMERS AND MARKETS.”

L E A N P R O C E S S E S , E F F I C I E N T S T R U C T U R E S , S O L I D C A P I TA L S T R U C T U R E

In this transitional phase, Nordzucker is preparing actively for the situation after 2017 in all areas. Given the market situation and prices we launched a wide-ranging new efficiency ­programme in early 2015. It delivered short-term cost-savings, but also a long-term package of measures, which is now being implemented gradually. We expect that Nordzucker will be able to make annual savings of at least EUR 50 million as a result.

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­N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Letter from the Executive Board

At a fundamental level we are convinced that it will be necessary to make the entire company even more focused on customers and markets. This will also mean streamlining and optimizing our workflows with the help of lean management methods. It is particularly important that these methods are applied throughout the company. Comprehensive change projects and our value process, which has been running for several years now, with the support of our new functional organizational structure, have given us a good basis to put the company on a successful new track.

“ O U R S T R AT E G Y I N R E L AT I O N T O G R O W T H C O N C E N T R AT E S O N T H R E E A R E A S : G R O W T H I N T H E E U S U G A R M A R K E T, G R OW T H I N T H E G LO B A L S U G A R M A R K E T A N D G R OW T H I N A DJ AC E N T AG R I C U LT U R A L M A R K E T S . ”

In addition to efficiency, sustainability is a key part of our corporate culture and our development goals. The all-round development of our value chain, together with our beet farmers and customers, is one of our most important objectives.

We have managed our business carefully in the past and you, our shareholders, have supported our decision to repay debt quickly. So today we have a very solid capital structure, with a high equity ratio and all net debt repaid. This enables us to keep making significant investments in our existing plants. One important aspect here is the improvement of sugar logistics.

SEIZE OPPORTUNITIES – DRIVE GROW TH

One of the European Commission’s aims for the deregulation of the sugar market was to make the sugar sector more competitive. It will trigger a further process of consolidation among beet farmers and within the sugar industry. Smaller companies and regions where yields are lower will find it difficult to stay the course in a much more difficult market environment – despite linked payments. For us in the good growing regions, who have the scale and financial clout to be competitive, the aim is to seize the opportunities that consolidation will provide. Our clear aim is further growth in the EU sugar market, and we are open to a wide variety of options.

Letter from the Executive Board : ­N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

Demand for sugar is growing globally and supply is currently lower than demand. This opens up chances for investing outside the EU. We will invest internationally when the oppor­tunities fit our requirements. Diversifying into other agricultural sectors is one of the growth and development options open to Nordzucker. Our strategy for growth therefore concentrates on three areas: growth in the EU sugar market, growth in the global sugar market and growth in adjacent agricultural markets. In all these projects the first and constant objective is to increase enterprise value and to generate earnings with which we can set the company on a course of sustainable profitability. This will enable us to keep distributing dividends in future.

Last year we initiated and implemented a large number of measures and projects. Preparations for 2017 will continue to keep us busy in the current year. We believe we are well on course to shape this transition in the way we want it and to lead Nordzucker to a successful future.

Our thanks go to you, our shareholders, for your confidence and your willingness to keep supporting Nordzucker as it enters this new future.

­Nordzucker AG The Executive Board

Hartwig Fuchs

Axel Aumüller

Dr Lars Gorissen

Dr Michael Noth

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N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Shaping the transition

Axel Aumüller

“IN PRODUCTION, NORDZUCKER IS VERY WELL SET UP FOR THESE CHANGES, WHICH

“ T H E C O M PA N Y I S

MEANS, ABOVE

WELL ON TRACK FOR

A L L , T H AT W E A R E

2016/2017. AND THE

FLEXIBLE.”

I M P O R TA N T T H I N G I S W H AT H A P P E N S A F T E RWA R D S . ”

“[…] THE MOST I M P O R TA N T T H I N G FOR NORDZUCKER IS TO THINK IN TERMS OF THE MARKET AND TO WORK.”

Hartwig Fuchs

Dr Lars Gorissen

“IN TERMS O F C A P I TA L , WE ARE VERY WELL EQUIPPED AND DEBT-FREE.” Dr Michael Noth

Shaping the transition : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

­N O R D Z U C K E R I N T R A N S I T I O N

PREPARE, SHAPE, SEIZE OPPORTUNITIES Nordzucker is in a phase of transition. The old European sugar market regime is being replaced by a market-oriented system. Nordzucker is getting everything ready for the start of this new era: new contracts with beet farmers, greater efficiency in production and administration, a clear focus on the market and customers and the will to seize opportunities arising from upcoming market consolidation in the EU and growth in global demand for sugar. Christian Kionka, Head of Communications and Public Affairs at Nordzucker, spoke to the members of the Executive Board about this far-reaching range of issues.

In discussion: Hartwig Fuchs, Axel Aumüller, Dr Lars Gorissen, Dr Michael Noth and Christian Kionka

Christian Kionka: Nordzucker has already begun the transition to the new market environment after 2017. But let us start by looking at the current situation. After a number of difficult months with severe pressure on prices, which is also reflected in the result, there are now signs that things are picking up again. What is the state of the sugar market at the moment?

Hartwig Fuchs: In the last six months or so, we were faced with great uncertainty on the markets. That has now got much better. We have moved away from the rock-bottom prices for sugar, which is a good start. The reasons for the more stable prices were the reduction in land under cultivation in 2015 and slightly lower imports from developing

countries. So sugar prices have stabilized, but there is still a great deal of uncertainty as far as 2017 is concerned. And the general situation in agriculture is unsatisfactory. Wherever I look, wheat and rapeseed are at all-time lows, and livestock and dairy farmers are making losses, which is then reflected in much lower prices for beet cossettes. But I can still say that we are well on track for 2016/2017. And the important thing is what happens afterwards. The current financial year is the last one for the old sugar market regime. At the moment, no one can escape from the volumes set by the quotas. So I believe that will make the year 2017/2018 really exciting.

Christian Kionka: Before we get to 2017/2018, I’d like to ask about the earnings forecast for the current year. Are things going to get better?

Dr Michael Noth: After breaking even in 2015/2016 and closing the year with slightly positive result, we are more optimistic again for 2016/2017. We will certainly achieve a significantly positive result, unless anything unforeseen happens. Prices have stabilized somewhat, and we will be helped by further cost savings from our FORCE efficiency programme as well as much lower energy prices.

Christian Kionka: There will be some big changes for our farmers, too, when the fixed quotas and minimum beet prices come to an end. How is Nordzucker preparing for that?

Dr Lars Gorissen: We have signed cultivation agreements for 2016/2017 in all countries apart from Germany. Our focus is now already on the period after the 2017/2018 financial year. In Germany, the negotiations for industry agreements and supply contracts are already well advanced. Here, the aim is to implement the delivery rights that are defined in the Articles of Association of the holding companies. There will be two main elements to the contracts in future: volumes, which are linked to delivery rights and thereby to shares, and of course the prices. In other countries, the situation is rather different. There are no delivery rights there, and we are currently negotiating with the farmers’ associations about the contract and supply conditions.

Christian Kionka: How will the amount of land under ­cultivation be planned after 2017? We have heard that some competitors intend to ramp up the area under cultivation to 140 per cent. Does that apply to Nordzucker, too?

Dr Lars Gorissen: The key message to our farmers is very different: we are not just focused on volumes, but first and foremost on the market.

That means our cultivation plans are based on what the ­colleagues in sugar sales have planned. It is on this basis that we will then plan how much land we need and negotiate the

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N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Shaping the transition

“ V O L U M E S W E R E ­P A R T I C U L A R L Y I M P O R T A N T I N T H E OLD SUGAR MARKET REGIME. BUT IN THE NEW WORLD, W E H AV E T O WATC H T H E M A R K E T M O R E C LO S E LY AND BE MORE FLEXIBLE.” Dr Michael Noth

contracts with the farmers. But altogether, we will probably grow more and so expand the area accordingly.

Hartwig Fuchs: I think it’s completely mistaken to aim for huge areas of land under cultivation and large volumes of beet. We already know that the EU will produce much more than it consumes. Where will vastly expanding the land under cultivation get us then? To the same situation as in dairy farming, that’s where. We, as a company, are owned by our farmers. Our aim cannot be to boost production regardless of demand, and so depress prices for the products and thereby for the beet itself! The law of the market applies, which means producing what we can sell at a reasonable margin – in domestic markets or for export.

Dr Michael Noth: We have just reduced sugar stocks sharply in 2015/2016. And that was absolutely correct, because if we stockpile huge quantities of sugar, that ties up a great deal of capital that we could better use for other things, and we also pay money for the storage. We don’t want to produce the most, we want to add value. And there, we all have to rethink our approach. Volumes were

­ articularly important in the old sugar market regime. But in p the new world, we have to watch the market more closely and be more flexible. Economies of scale do play a small part in that. But at the end of the day, I think the opposite effect is much more important, namely the large amount of capital tied up in inventories and the fact that additional volumes often sell for less.

Dr Lars Gorissen: Ultimately, both volumes and prices depend on the market. If that means we can run long campaigns, then that’s all well and good. But that is not the primary objective.

Christian Kionka: What does the Production function have to say about that?

Axel Aumüller: In Production, we are very well set up for these changes, which means, above all, that we are flexible.

We are one of the few companies with many years’ experience of campaigns lasting 120, 125, 130 days or longer on average across all our plants in the various countries, but we can also do shorter campaigns – it all depends on what is

Shaping the transition : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

needed. And adapting our maintenance and investment to these different cycles is something we have practised often enough. We’ve done our homework, we’ve consolidated the plants very well and we know what it means to be flexible.

Christian Kionka: So to what extent does the company still have to change overall to be prepared for the challenge?

Hartwig Fuchs: In the past few years, we have implemented a number of vital measures. On the one hand, we have to give the company, which has grown considerably in recent years, an identity. That is important because it is vital that everyone pulls in the same direction, especially when times get tougher. And I should say that we have done that pretty well. We have defined common values and launched a comprehensive process of change that is very successful.

In a much more liberal market and with greater competition post-2017, one of the main new requirements will be to take decisions faster. People have to get used to that, it requires some rethinking. We have also concentrated on achieving cost-savings and efficiency gains. So altogether, we no longer have to keep thinking in terms of production capacities and their optimization, but in terms of the market.

But I think we are making very good progress.

Axel Aumüller: Well I am convinced that the staff in the plants understand perfectly well that production basically has to be the link between the demands of the market, on the one hand, and the beet that is grown, on the other. And our employees in the plants also know that the customer is the first priority and they are aware of what they have to do to keep the customer happy. We have just launched an additional quality offensive that highlights customer focus from a different angle. We really are advancing with great strides and have the whole team behind us, which is very impressive. It is also important that we now work through all of the projects initiated as part of our FORCE programme in a structured way. A whole range of activities has been agreed upon and in the next two to three years they have to be put into practice.

Christian Kionka: When we talk about market focus, that relates to the entire value chain. Are our beet farmers also prepared for the changes?

Dr Lars Gorissen: This is a radical paradigm shift based on a political desire. None of those concerned wanted this paradigm shift, especially not the beet farmers. But now it is coming anyway, and that implies a change in the way we think. So we have to part with a number of habits formed in the past. This is a difficult process, which for some people is also painful, but which takes place over a period of time.

In the years ahead, so post-2017, when we have got a feel for the new situation, we will certainly keep on learning and developing ourselves further. But I think that, altogether, we are on the right track.

Christian Kionka: How much is grown and how much is ­produced will depend on the market in future, as we have already said. But beet cultivation has a lead time of around 18 months. Do we know today what we are going to sell in 2017/2018?

Dr Michael Noth: The important thing is to adopt a market perspective on what we can sell and to put a rough figure on these expectations. That means communication between Sales, Production and Beet has to work well, so that we can seize market opportunities as they arise.

Our predictions will never all be completely accurate, but we should be flexible enough to respond well to fluctuations in demand without financing great stockpiles.

Axel Aumüller: One of the packages of measures in FORCE focuses on precisely that: optimizing this planning process, which will improve the feedback loop between market demand, on the one hand, and the capabilities of the beet

“DO WE KNOW T O DAY W H AT W E ARE GOING TO SELL IN 2017/2018?”

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N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Shaping the transition

farmers and the production function, on the other. I am confident that it will work very well.

Christian Kionka: In addition to good volume planning, it is also important to maintain our plants to a standard that ensures they stay competitive. What is planned in this area?

Axel Aumüller: Of course we will continue to invest in the existing plants. Nordzucker has always done this very consistently and resolutely in the past, with a clear focus on the operating environment. Logistics will be a key area in the future. And we will also be looking at the map to see whether every service centre and every sugar warehouse, for example, is equipped in the way we want it to be for the future.

Christian Kionka: Sustainability is a big topic in the public debate. How do we feel about it?

Axel Aumüller: Sustainability is something that we have been pursuing consistently for many years. And as part of the reorganization, we have given it even higher priority. It is money well spent, because it shows customers that we not only care about short-term success, but also about efficiency and economy, occupational health and safety, quality, the environment and social matters.

Dr Michael Noth: Ultimately, that is what differentiates our products from the sugar that can be imported. With our sugar, we can say where the beet it comes from was grown and under what working conditions. Our customers and consumers are quite rightly paying more attention to these aspects.

Dr Lars Gorissen: One of our most important company goals is to promote sustainability in beet farming. In Germany, Poland and Sweden in 2015, we very successfully carried out a sustainability appraisal based on the Farm Sustainability Assessment (FSA Implementation Framework Version 1) as part of the Sustainable Agriculture Initiative (SAI). For our customers, it is important that we have our high standards assessed and audited by independent agencies, so it is an investment that pays off.

Christian Kionka: Let us now turn to the consolidation of the sugar market in the EU that is expected after the sugar market regime expires. Will it really happen? How will the ­process unfold? And what role will Nordzucker play in it?

Hartwig Fuchs: Of course the market will consolidate. It is what we have said in the past and nothing has changed.

There are two developments taking place in parallel. Certain growing regions will stop producing beet after a certain time, because cultivation there is no longer competitive. The geographically disadvantaged regions will lose out again to

the more favoured locations, simply because other arable crops deliver higher yields there. But at the same time, a certain critical mass is required to make large-scale investments; in view of 2020, for instance, and the demands of the Climate Change Conference. It will be much more difficult for smaller companies, and the banks will also look more closely at what they think is viable if margins are contracting at the same time. And we also know that we will produce more sugar in Europe than we can sell here. That means the sugar will get sold which is produced relatively close to the market. Which in turn means that companies further away from the ports will incur higher costs to export their product. We are close to the ports and have a sensible size.

That is a good start.

Dr Michael Noth: And we are extremely well equipped.

That is no idle boast. In terms of capital, we are very well equipped. We have no debts. Thanks to our Profitability plus and FORCE projects, we have made continuous efficiency gains, and we can play an active role.

Dr Lars Gorissen: Plus, we have very good sites. Of course, the yields are higher in France and certainly in the south of Germany, too. But we still have a very high level of beet cultivation here. The yields that we have achieved in the past few years and on average have been good, and most importantly they are getting better. So we are also in a strong position in terms of beet cultivation. We are confident that in the markets we see as core and want to have as core, we will always be able to provide steady supplies.

“WE ARE OPEN FOR THE O P P O R T U N I T I E S T H AT A R I S E A N D F O R W H AT E V E R F I T S W I T H T H E S T R U C T U R E O F T H E E U M A R K E T. ” Hartwig Fuchs

Axel Aumüller: The same holds true for production, of course. In most of the countries in which we produce, we have shown that we can deal very well with campaigns of up to 135 days in our climatic conditions. As far as environ­ mental investments are concerned, we have to accept that the new European emissions directives and other environmental legislation will make considerable demands of us in the years ahead. But as a larger company, we are obviously better placed to cope with them than a small firm.

Shaping the transition : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

“ O N E O F O U R M O S T I M P O R TA N T C O M PA N Y G OA L S I S TO P R O M OT E S U S TA I N A B I L I T Y I N B E E T FA R M I N G . ” Dr Lars Gorissen

Dr Michael Noth: And we have a very solid financial structure. That is good for several reasons. We will have to deal with increasing volatility, which means we will have a bad year every now and again, and we want to be in a position to absorb that. We also want to invest in our core business to strengthen it further, and of course our aim is also to grow in our capital-intensive business by means of acquisitions.

Either way, we are well prepared for all of these challenges.

But we should also be very grateful to our shareholders.

Because they were the ones who decided to take a great step forward with the acquisition of Nordic Sugar and they have also had the patience to let the company pay back its debt quickly. That was a clear sign of confidence in the company, which is very important for us. Ultimately, we want to keep developing the business. We don’t want to stand still.

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Hartwig Fuchs: Just to add one thing. Consolidation doesn’t necessarily mean that a company disappears completely. Neither does it imply a full takeover. It can also be a partnership or a strategic investment, a joint venture or an alliance. We are open for the opportunities that arise and for whatever fits with the structure of the EU market.

Axel Aumüller: In terms of beet, the regions that survive will be those where the production costs are low compared with those for alternative crops. And for cane, it will be increasingly important where water is available in sufficient quantities. So indefinite expansion in all regions will not be possible.

Christian Kionka: You were saying that it is too early to ­predict the volume of potential exports. But the global sugar market will continue to grow and play an increasing role.

To what extent does it still make sense for Nordzucker to look outside the EU, and which regions could play a role?

Dr Lars Gorissen: Cane has very different cycles to beet.

Cane grows in the field for at least five years, sometimes longer. Beet only grows for one year in the same soil. And we have seen that this makes us much more flexible with beet.

We responded to the surpluses in Europe by cutting back drastically on land under cultivation. That kind of flexibility cannot be achieved so easily with cane. You can switch a bit between sugar and ethanol, but beet is much more flexible, and this flexibility means that it will continue to play a key role in the global market.

Hartwig Fuchs: We have looked at a few projects outside the EU to date. We were basically concentrating on consumer markets. Our aim was to go where there is growing demand in order to serve local markets. But in view of the developments we have seen in the past twelve months, with the very steep fall in prices, but also the inability of many producing countries to invest, we are now also looking at the major production countries, too, and of course that also means South America. Asia is also relevant. But at the end of the day, we have to invest this money, which is not ours, but belongs to the shareholders, in such a way that we can say in good conscience; yes, we are really convinced that it makes sense.

Christian Kionka: I have another question here: where does the future lie? In cane or in beet?

Christian Kionka: I would like to come back to the company strategy. Is the intention also to diversify? That has advantages, particularly in terms of absorbing market risks, which we are certainly exposed to given the volatility of the sugar market.

Hartwig Fuchs: We are always thinking about whether what we do well in sugar production in Europe can be transferred to other agricultural products. Think about risk management topics, certain cycles, market visibility and production planning. Ultimately, these are all the same topics, just applied to different agricultural products. So it is a subject that is relevant for us. But we are not about to diversify ourselves into something completely different. It has to be very close to what we are already doing.

“WHERE DOES THE FUTURE LIE? IN CANE OR IN BEET?”

Shaping the transition : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

Christian Kionka: Do isoglucose, starch or bioethanol come into these considerations?

Hartwig Fuchs: With isoglucose, I have a problem with the product itself. I don’t believe that isoglucose will be a lasting success with European consumers. Past experience with high-fructose corn syrup from the USA shows that. Plus it requires certain agricultural products as a basis. Maize would be ideal. That means Romania, Bulgaria, Hungary or Serbia are possible. In my opinion, we are better placed to meet consumers’ demands with regionally produced sugar than with a product made of maize grown somewhere in South-Eastern Europe and transported at great cost through the EU.

“WE WILL GET TO GRIPS WITH THE CHANGES BROUGHT ABOUT BY THE END OF THE MARKET REGIME.” Axel Aumüller

Starch is a better fit for us. We are not ruling that out. But as always, we have to ask whether an investment in this area will pay off and how we can apply our strengths.

Christian Kionka: And what about bioethanol?

Hartwig Fuchs: Our 2015/2016 earnings were largely saved by the very strong market for bioethanol. I owe this success to our team in production and especially in marketing. The problem here is just that we are faced with a market with wild fluctuations in prices. And what is more: we, as a company, are too small, even for this market. That rules out many options for shaping things ourselves. We have to think further about how we want to proceed in this area.

Christian Kionka: To wrap up, one more question to summarize your expectations for the period after 2017: What will Nordzucker stand out for in 2020?

Dr Michael Noth: Nordzucker will be a strong player in Europe that has also managed to build up a strong presence outside Europe. A company with a culture that enables it to be ambitious, agile and market-focused. In short: a company that meets the expectations of its suppliers and shareholders.

Axel Aumüller: We will get to grips with the changes brought about by the end of the market regime. We are well prepared. The team is well prepared – from the management to the employees at the plants. We are well positioned.

I am not in the least worried about 2020. We have to look for our chances in Europe and we will find them. I am convinced that by then, we will also have at least one operation outside Europe.

Dr Lars Gorissen: Exactly, and we will be a company that even without quotas and minimum beet prices has managed to ensure a dependable supply of beet. A company that beet farmers are happy to grow beet for.

Hartwig Fuchs: The important thing is to get through this transitional phase. And that we diversify internationally – maybe also into other agricultural areas. We are on the right track and we want to grow. If, in 2020, we hear from our shareholders, ‘They have done a decent job at Nordzucker in the past few years.’ ... that would be good.

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A CLOSER LOOK AT MARKETS, CUS TOMERS AND TRENDS QUICK DECISIONS, CONFIDENCE AND CONSISTENCY ARE THE KEYS TO SUCCESS

He has been guiding Nordzucker for more than six years, and a few months ago Hartwig Fuchs also took on responsibility for Marketing and Sales – at a time of great upheaval. Where are sugar prices in Europe headed after the depressing lows that were reached during the 2014/2015 sugar marketing year? Will there be another rally, like a few years ago, when falling production was comparable to today’s? What direction will the bioethanol market take? How long will the crisis on the milk market continue to affect the market for animal feed? For the CEO, these are just some of the exciting new challenges posed by the macro-developments on the various markets.

“ WE HAVE TO DEVELOP AN ACUTE MARKET INTELLIGENCE

BY C O M P I L I N G M A R K E T I N F O R M AT I O N , A N A LY Z I N G I T, D R AW I N G O U R C O N C L U S I O N S A N D T H E N S Y S T E M AT I C A L LY PUTTING THEM INTO PRACTICE.” Hartwig Fuchs, CEO/CMO

In this context, 1 October 2017 marks a significant break for the company. ‘Old ways of thinking just don’t cut it any more’, says the Chief Executive Officer, who is clearly enjoying his new role.

‘We are in the middle of a paradigm shift, because the changes in the market are happening much faster than many people initially expected.’ From the outset, he has been encouraging his international team to take responsibility, in order to act swiftly and consistently. What sounds plausible in theory can require uncomfortable decisions in practice, as was recently the case in the bioethanol business or the retail sector. ‘Severe distortions and price excesses had confronted us with the choice of participating in a negative pricing spiral or losing market share. We made a deliberate decision not to take this business – and in hindsight, we can say that in terms of pricing we were absolutely right’, explains Fuchs.

NOT AFRAID OF FORECASTS

Taking such well thought-out decisions often means rejecting old ways of doing business.

Hartwig Fuchs sees it as his leadership role to take ownership of this process and to encourage his team to do the same. ‘We have to develop an acute market intelligence day by day, by compiling market information, analyzing it, drawing the right conclusions and systematically putting them into practice’, emphasizes the Chief Executive Officer.

Shaping the transition : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

If you use data from a wide variety of sources to make forecasts about the future availability of products and their demand in key markets, then you have to go the whole hog. ‘That means turning market opportunities into successes. Speed is often vital here’, underlines Fuchs.

The impact that isoglucose will have on the sugar market, forecast land under cultivation across Europe, beet’s competitiveness compared with rapeseed and wheat, future EU consumption, where any imports and exports will take place – and how will the other market participants position themselves? These are all important questions. ‘We have worked through many possible scenarios and are very agile in all directions.’ Fuchs knows that his people, who manage the sale of sugar, animal feed and bioethanol, as well as the corresponding logistics, are close to the market and that they plan and act carefully. ‘I can rely on every single one of them. They know what they’re doing and they have a flair for their business.’ Cooperative management, delegating decision-making as broadly as possible and backing his staff to the hilt are the leadership tools that Hartwig Fuchs uses for success at a time of great change. When international markets demand speed and courage, the decision-making channels have to be clear and streamlined so that processes do not get blocked and hold up business. ‘Together, we have done a lot to actively take ownership of the change process and to make our decisions ever faster – with success. But things can always be improved.’

More speed and less bureaucracy: it is not always straightforward and not always free of contradictions, as Hartwig Fuchs is the first to admit. Maintaining the balance and not losing sight of profitability are two keys to achieving this.

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2017

marks a turning point […] for European beet farmers

HAND IN HAND FOR MORE EFFICIENCY IN SUGAR BEET FARMING 2 0 · 2 0 · 2 0 S E T S N E W S TA N DA R D S

The

ph-value of the soil has to be just right.

Shaping the transition : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

For European beet farmers and for Nordzucker, 2017 marks a turning point that will not pass by unnoticed. At its heart is the question of how beet cultivation can be made even more efficient in future. The main objective of the cultivation advisory work is to achieve sustainable increases in sugar yields per hectare, with positive effects for transport and processing costs.

Nordzucker laid the groundwork for this with the 20·20·20 programme, which has been running for a number of years. Dr Andreas Windt is responsible for the cultivation advisory work and manages the project. He is very pleased with the progress to date: ‘We have increased the yields continuously and are mostly within the range that we defined for achieving significant year-on-year improvements in sugar yields per hectare.’ Even if there are some setbacks due to the weather, which brought yields down last year in Poland, Slovakia and Finland, for instance, the many activities contribute to constant improvements in cultivation practices. That is also emphasized by Michał Szymański from Urbanowo in Poland.

T I M I N G O F S O W I N G H A S G R E AT I N F L U E N C E

‘One thing is the timing of the sugar beet sowing, of course. It has a great influence on the harvest and has to be as early as possible, but carefully chosen. This is the only way to make optimal use of the water reserves that have collected over the winter. In addition, it encourages the development of the root system and ensures that the vegetation period is long enough.

The longer the vegetation period, the better the harvest.

The pH value of the soil also has to be just right. Economical fertilizing has to provide the nutrients needed by the beet, which are determined in advance by a soil analysis. The right amount of nutrients delivers a high-yield, high-quality harvest.’

The chairman of the agricultural cooperative also underlines the importance of farming methods: ‘In the autumn of the year before the beet is sown, I sow a catch crop consisting of three plants: broad beans, peas and phacelia. I also plant sunflowers as a catch crop, because their high proportion of biomass is important for mulch seeding. This is because I haven’t used a plough for years now, and I use mulch seeding and the strip-till method instead.’

With this method, the ground is prepared (but only around the rows to be sown), fertilized and sown in one pass. And so plenty of soil is still covered by a layer of mulch even after sowing.

20·20·20 PROJECT IS BEARING FRUIT

Precisely these methods are the cornerstones of the 20·20·20 project. ‘We look closely at everything that could contribute to safeguarding and increasing yields.’ So in addition to adapting the tillage to the local conditions, choosing the right variety is vital for sugar yields.

Fertilizer and crop protection equally contribute to good yields, as do new cultivation ideas.

Trials with equal-space, narrow-row sowing, in which the beet is drilled at equal intervals but closer than normal, show, for example, that the sugar yields have increased considerably.

Covering the beet with fleece or using pre-germinated plants has a positive impact during the vegetation phase. Special fertilization methods with microgranules work by applying the fertilizer directly to the row. But mechanical-chemical weed control using modern hoeing technology is also an important topic.

‘We need strong partners like the ARGE NORD and others at our side, in order to be able to set up the trial rows properly’, emphasizes Andreas Windt. Recent trials with diseases, such as root rot, are expected to provide information about how to combat them.

PROJECTS A S PA R T O F 20 ·20 ·20

> Equal-space, narrow-row sowing > Banded fertilizer with microgranules > Digestate fertilizer in the strip-till method > Mechanical-chemical weed control using modern hoeing technology > Beet under fleece > Beet > Root rot trials

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But not everything that works as a trial can also be applied later in a commercial way. Frank Knälmann, Head of Agri-Analysis and Sourcing Models, looks closely at profitability in direct comparison with competing crops. ‘In the medium term, sugar beet will have to compete in economic terms with alternative crops. But a purely economic comparison with other crops is not the whole story. As agricultural markets become more volatile, it is increasingly important for the farms to offset market risks. This can be by growing a variety of crops, for example. Then the farm does not just depend on the ‘big crops’ like rapeseed and wheat, but also commits to sugar.’

“ I N A G RO U P O F L E A D I NG B E E T FA R M E R S , W E C O M PA R E N OT E S A N D H AV E I N - D E P T H D I S C U S S I O N S T H AT O F T E N L E A D T O E F F E C T I V E S O L U T I O N S F O R B E E T C U LT I VAT I O N . ” Michał Szymański

And of course, some persuasion is also required to get the farmers to try out new ideas. Michał Szymański has recognized that and emphasizes that communication and discussion about trends and developments in arable farming are the keys to success. The Polish farmer finds the round-table meetings, organized, among others, by Adam Kostrzewski, the Head of the AgriCenter in Opalenica, to be very useful. ‘In a group of leading beet farmers, we compare notes and have in-depth discussions that often lead to effective solutions for beet cultivation.’

A dedicated initiative has even been formed in Sweden and Denmark ‘Together to Twenty Tons of Sugar Twothousandandtwenty’ perfectly embodies the goals of the 20·20·20 initiative.

Now, two German farms have also joined the 5T project to contribute their experience to the pool.

There is no doubt that the AgriCenters will be kept busy along the entire value chain in future.

In addition to cultivation advice and horticultural topics, they will also have to investigate appropriate commercial responses to the challenges of the liberalized market after 2017.

Michał Szymański is 68 years old and the experienced director and chairman of the agricultural cooperative in Urbanowo, Poland. The cooperative farms a total of 856 hectares, 270 hectares of which are its own land. It focuses primarily on arable farming with sugar beet, winter wheat, rapeseed, maize, triticale, winter barley and alfalfa, as well as on dairy production. Some 370 dairy cows are kept by the cooperative.

Shaping the transition : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

But securing raw materials also needs attractive contract systems that are adapted to the new environment. Our aim is to let farmers choose between fixed and variable price models and between annual and multi-year contracts. Several options should enable the farmers to select the contract that best fits their business.

INTERVIEW WITH DR LARS GORISSEN

BEET CONTRACTS OF THE FUTURE 1. What will the contracts look like in future?

The end of the quota system in 2017/2018 confronts us with a genuine – politically desired – paradigm shift. Even if there will still be industry agreements and supply contracts, new parameters will govern the terms for pricing and volumes, in particular. Volume management in Germany will take place in future via the delivery rights that are defined in the Articles of Association of the holding companies and the ‘free volumes’.

In all the other countries where the Group operates, we are negotiating flexible contract systems in order to ensure competitive cultivation and stable supplies. One decisive point will be the price, of course, which will replace the previous minimum quota price and be based on the alternative crops that our beet farmers can grow and on the situation on the sugar market from year to year. Sugar beet will not always be the most profitable crop. That is a normal process, with prices set by the market, instead of statutory minimums. But in any case, the beet will remain an important and competitive crop, even after 2017.

And finally, we must all rethink our approach in order to make this politically desired transition a reality. This is because in future, our plans will be based solely on the demands of the market. That means the volumes needed may fluctuate from year to year, and with them the prices, because they now have to reflect the situation on the market and not defined quotas and minimum beet prices.

We mustn’t forget that we are all on the cusp of a major change. And we will deal with this situation together.

3. Are there different approaches in the different countries where Nordzucker operates?

In Germany, but not in the other countries, there are delivery rights which define the framework for the contract and volumes supplied.

Our other Group countries have greater latitude in their contracts. Overall, we apply standard principles, with local differences in terms of pricing. Comparisons are difficult, because it depends to a large extent on competing crops, which vary from one country to another.

“WE ARE ALL ON THE CUSP OF A MAJOR CHANGE, AND WE WILL FAC E T H I S C H A L L E N G E A N D OV E R C O M E IT TOGETHER.”

4. What are the biggest challenges after 2017?

2. How will you ensure you get enough beet?

Sugar beet is a very important crop for our farmers. They have years of experience and the required expertise to continue growing beet sustainably and with very good yields – from the small farms right up to the largest businesses. That is the first requirement for securing our supply of beet. In addition to the prospect of continuing to achieve attractive financial results, there are other good arguments in favour of beet: firstly, the expectation of further, steady improvements in the yield, which is not the case for other crops. Sugar beet also delivers extremely stable yields, which is an important aspect in terms of diversifying operational risk. Finally, beet plays an important role in crop rotation and has advantages in terms of greening requirements.

First and foremost, we want to ensure that beet is grown in the required quantities. To achieve this, we will make attractive offers, because competition for the land and also for the beet is tough. We come from a world of quotas, where neither we, as a company, nor our farmers had to worry so much about obtaining our raw material in sufficient quantities. That will now change. We will plan and act in close contact with the market. And in particular, I see an even more important role for our AgriCenters: advising our farmers on efficiency and improved cultivation methods will have to be given even higher priority if we are to further increase sugar yields per hectare. With our 20·20·20 programme, we are already well on track to get there. Advice on commercial matters will also be an important aspect.

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THE WINDS OF CHANGE F O C U S O N E F F I C I E N C Y, C U S T O M E R B E N E F I T S A N D IMPROVEMENTS

It can be felt everywhere: the winds of change are blowing at Nordzucker.

It is not only about increasing efficiency and cutting costs, but about finding new ways of thinking. What the sugar market regime protected, regulated but also restricted, will now be subject to a new set of mechanisms. Nordzucker is preparing itself with a comprehensive change process, the consistent implementation of lean management methods and a large number of individual improvements. The company is on the move.

Efficiency is an important prerequisite for market success. Nordzucker has been working continuously on this topic for many years, initially with the profitability plus project (2009 to 2014) and, since last year, with FORCE. Axel Aumüller, Chief Operating Officer, explains why FORCE is so important for the company. ‘We have already achieved a lot at Nordzucker, but still see plenty more opportunities. Every time we implement one measure we have new ideas for the next step.’ Dr Michael Noth, Chief Financial Officer, continues: ‘Over the past few years we have undertaken a lot to be one of the leaders in our field. Now all our competitors are following suit, so we have to keep working in order not to fall behind. Nobody ever becomes ‘efficient’; the important thing is how much we improve every year.’

A strong, cross-functional team has to take on this challenge and scrutinize all areas of the company without reservations. At Nordzucker this team is led by Dr Henning Thiem with the support of energetic colleagues in Sales, Logistics, Production, Purchasing and Indirect Units.

‘The pressure on us was immense,’ says project manager Dr Henning Thiem, ‘because the movement of sugar prices meant we had to make cost-savings quickly, but at the same time we also had to take various steps to safeguard the long-term earnings position after 2017. We managed to do both of these.’

With

FORCE the company launched a new and particularly ambitious savings and efficiency programme at the start of 2015.

And so savings of a two-figure million amount were achieved for 2015/2016. The long-term measures cover a wide range of activities, explains Dr Henning Thiem: ‘Alongside typical savings in staff and operating costs we focused above all on strengthening the purchasing function, improving processes along the entire internal value chain and administrative functions and on reviewing the product range.’ As part of FORCE the whole company was analyzed in order to achieve the savings goal of at least EUR 50 million that had been agreed with the Executive Board. ‘We are optimistic that we will deliver the EUR 50 million in savings, but to do so we have to implement the measures consistently,’ explains Dr Michael Noth, Chief Financial Officer. At the last count around 400 individual measures will contribute to reaching this goal.

Shaping the transition : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

“THE LEAN METHODS ARE RADICAL. WHEN THEY ARE A P P L I E D S Y S T E M AT I C A L LY THEY CHANGE T H E WAY P E O P L E T H I N K , SET PRIORITIES AND MAKE DECISIONS.” Sven Buhrmann, Head of Investments & Maintenance & Major Projects

“[…] BECAUSE THE MOVEMENT OF SUGAR PRICES MEANT WE HAD TO G E N E R AT E C O S T - S AV I N G S Q U I C K LY, B U T AT T H E S A M E T I M E W E A L S O H A D T O TA K E VA R I O U S S T E P S T O SAFEGUARD THE LONG-TERM EARNINGS POSITION AFTER 2017. WE MANAGED TO DO BOTH OF THESE.” Dr Henning Thiem, Head of Sales & Marketing Controlling

“ W E S TA N D A R D I Z E D OUR WORKFLOWS IN THE INDIVIDUAL PL ANT S, S O T H AT W E C A N L E A R N F R O M T H E B E S T. ” Axel Aumüller, Chief Operating Officer (COO)

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P R O D U C T I O N A N D P U R C H A S I N G H E AV I LY I N V O LV E D

Production and Purchasing already made vital contributions to the last profitability plus project.

Axel Aumüller explains how the new project works: ‘We standardized our workflows in the individual plants, so that we can learn from the best. This involved devising an ideal greenfield plant and then comparing it with the reality at each site. Of course there are always things that have to be worked out individually, simply because the local conditions are different. But this method does enable us to identify a large number of potential improvements that we would certainly have never found otherwise. And so we become even better.’

However, the important thing is not only this one-off comparison, but also to establish methods for making continuous, lasting improvements to the company. ‘It was particularly important to get all the managers and employees on board that we need for the implementation. With FORCE we learned how important it is to make process improvements a permanent topic and not just a project that comes to an end at some point. So we set up a completely new team of competent Nordzucker staff that is now dedicated full-time to implementing the methods and concepts of lean management throughout the company,’ says Axel Aumüller.

LEAN IS RADICAL The FORCE programme will enable lasting savings of an estimated EUR

50 MILLION

The Lean methods are radical. When they are applied systematically they change the way people think, set priorities and make decisions. They help companies to concentrate on the essentials.

‘The first thing Lean asks is about the benefit to the customer. But being of benefit to the customer is not enough. The customer must also be willing to pay for the benefit,’ is how Sven Buhrmann, Head of Investments & Maintenance & Major Projects, explains the basic idea of lean management. This consistent and radical focus on essentials is the core of the Lean approach, which all employees and managers at Nordzucker are meant to internalize with the help of training courses, and above all by practical application.

T R A N S P A R E N C Y , C O M PA R A B I L I T Y , U N D E R S T A N D I N G

Lean brings transparency to the process environment, comparability and a better understanding for interfaces and the division of responsibilities. Nordzucker has become a large international company and some of its routines and legacy structures can be simplified and streamlined. ‘Make it simple’ is the clear motto that Sven Buhrmann and his team have adopted for their mission.

‘Lean methods get every individual employee to question and rethink their workflows and ­routines. That often results in people automatically finding innovative new ways of doing things differently and better,’ says Axel Aumüller. To really establish the Lean methodology within the company it is vital to involve everyone and to work consistently with the Lean methods over the long term. So ‘lean navigators’ are being trained throughout the company, who will also act as ambassadors of change. This makes Lean part of an all-encompassing change process that is making Nordzucker more successful, more focused on markets and customers and better prepared for the challenges of the post-2017 period. The cultural transformation process has already begun.

Shaping the transition : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

­N ORDZUCKER’S FINANCES ARE ROCK SOLID

Dr Michael Noth, Chief Financial Officer (CFO)

Nordzucker put a difficult year behind it in 2015/2016 and was finally able to close the period with a small ­profit thanks to FORCE and more stable markets. With this in mind, Dr Michael Noth explains the financial ­strategy of the Nordzucker Group.

‘The aim of our financial strategy is to ensure the ­company’s finances are solid. We want to manage our company in such a way that we achieve an investment grade rating from our banks. This puts us among the more conservative agricultural and industrial companies. One of the main reasons for that is the high ­volatility of our core business. In the past few months we have experienced first-hand the massive impact that swings in the world market price have on our margins. When the sugar market regime expires in 2017 these cycles will become more pronounced, not less.

When times get tough, a lot of companies have their hands full fighting fires and keeping their heads above ­water – we want to be able to seize opportunities and be successful in ­these ­situations too. Our business is very

capital-intensive; scale and growth are vital for lasting success on the market. So we want to use our conservative financing structure to make use of the growth options provided by market consolidation in the EU and elsewhere.

“THE AIM OF OUR FINANCIAL S T R AT E G Y I S T O E N S U R E T H E C O M PA N Y ’ S F I N A N C E S A R E S O L I D . ” Our shareholders have, however, already invested a great deal of money in the company – about EUR 1.3 bil­lion at the end of the last financial year. This enormous ­investment has to pay off for them; it has to earn a ­return in the same way it would at other companies. We are very well aware of this responsibility to our shareholders.

And so it is vital for us to underline the importance of the share with reasonable dividends. The Executive Board has therefore decided to propose a dividend payment, even though last year was difficult.’

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足N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Management report

Photo: Boris Kuster

Management report : N ­ O R D Z U C K E R A N N U A L R E P O R T 2015/2016

GROUP MANAGEMENT REPORT

28 30 34 35 38

� Group management report � ­­Nordzucker at a glance � Macroeconomic situation � The sugar market � Market for animal feed and molasses 39 � Market for bioethanol

39 � Market for sweeteners 40 � Beet cultivation and ­sugar production 41 � Earnings, net assets and financial position 45 � Capital expenditure 45 � Financing

46 46 48 56 56

� � � � �

Dividend Employees Opportunities and risks Supplementary report Forecast

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N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Management report

G R O U P M A N AG E M E N T REPORT OF ­N O R D Z U C K E R AG N O R DZ U C K E R AT A G L A N C E Business activities ­ ordzucker is the second largest sugar producer in the EuroN pean Union, with a market share of more than 15 per cent, as measured by the EU sugar quota. In the past financial year, the company produced 2.0 million tonnes of sugar from sugar beet in 13 sugar plants in seven European countries.

On average over the year, the Group had 3,206 employees.

Our customers include the confectionery industry as well as producers of dairy and bakery products, jams, ice cream and drinks. To a lesser extent, our products are also used outside the food and beverages industry. ­Nordzucker sells some 80 per cent of its sugar to customers in the food industry.

The remaining 20 per cent is supplied to consumers via the

retail industry. N ­ ordzucker sells these retail sugar products to consumers in many different product categories and pack­ aging sizes, primarily under the brand names SweetFamily in Germany, Poland and Slovakia and Dansukker in Northern Europe. Standard products are also sold to consumers under white-label brands. The portfolio includes other products of the sugar-making process, especially dried pulp pellets, pressed pulp and molasses as animal feed; the latter also for the yeast and alcohol industries.

­N O R D Z U C K E R A G

­N o r d z u c k e r A G Braunschweig / Germany NORDDEUTSCHE FLÜSSIGZUCKER GMBH & CO. KG Braunschweig / Germany

100 %

NORDIC SUGAR A/S Copenhagen / Denmark

100 %

POVA Ž SKÝ C U KOR A .S. Trenčianska Teplá / Slovakia

NORDIC SUGAR AB Malmö / Sweden

100 %

­ ORD Z U CKE R POL SKA S.A .

N 99.87 % Opalenica / Poland

70 % SUOMEN SOKERI OY Kantvik / Finland

80 %

SUCROS OY Säkylä / Finland

80 %

A B N O R D I C S U G A R K Ė DA I N I A I Kėdainiai / Lithuania ­ O R D Z U C K E R I R E L A N D LT D .

N Dublin / Ireland

70.60 %

100 %

96.80 %

Management report : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

SITES IN EUROPE

GROUP HEADQUARTERS D

1

Braunschweig

REGIONAL HEAD OFFICE DK

2

Copenhagen

SUGAR PLANTS AND REFINERIES D

DK

S

FIN

3

Clauen

4

Nordstemmen

5

Uelzen

6

Klein Wanzleben

7

Schladen

8

Nakskov

9

Nykøbing

10

Arlöv

11

Örtofta

12

Porkkala

13

Säkylä

LT

14

Kėdainiai

PL

15

Chełmża

16

Opalenica

SK

17

Trenč ianska Teplá

D

18

Liquid sugar plant Groß Munzel

19

Liquid sugar plant Nordstemmen

SUGAR PLANTS – N O N - C O N S O L I DAT E D M I N O R I T Y S TA K E CZ

20

Dobrovice

21

Ceské Meziříčí

29

13 12

30

28

26

2 24

31

11

14

10 23

8

9

1

6 22

27

5 18 25

4 19

3

15

16

7

20

21 17

O T H E R LO C AT I O N S D

22

Bioethanol plant, Klein Wanzleben

S

23

Köpingebro (Fibrex)

DK

24

NP Sweet, Copenhagen

B

25

Office Brussels

SALES OFFICES LV

26

Riga

LT

27

Vilnius

EE

28

Tallinn

IS

29

Reykjavik

NO

30

Oslo

IE

31

Dublin

GR

32

Athens

32

31

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N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Management report

Strategy Since the company was founded in 1997, N ­ ordzucker has systematically driven growth in its core sugar market. Consolidation of the North German sugar industry was followed by several acquisitions in Eastern Europe. N ­ ordzucker pursued its growth strategy with the purchase of the Nordic Sugar Group in 2009 and is now the second largest sugar producer in Europe.

After restructuring its investment portfolio in 2010 and 2011, the ­Nordzucker Group now concentrates on the production and distribution of sugar. ­Nordzucker benefits from a strong market position in the EU and a solid financial structure.

If competition intensifies, the EU sugar market is expected to undergo a further process of consolidation, in which ­Nordzucker will play an active role. In addition, the company works continuously to achieve further efficiency gains and makes targeted investments in its plants, in order to maintain their high level of productivity. Overall, N ­ ordzucker has the best chances of being able to exploit the market opportunities that will result from the expiry of the quota system in 2017.

As the sugar market regime expires in 2017 and the limit on export volumes is lifted, the sugar trade will become more important in future. Developing expertise in European sugar exports and in the logistics required for this are therefore key elements in terms of the company’s future development. In the 2015/2016 financial year, N ­ ordzucker acquired a 25 per cent stake in August Töpfer Zuckerhandelsgesellschaft mbH & Co. KG, Hamburg, in order to strengthen itself in this area without compromising existing relationships with international partners.

In addition, the company reviews growth opportunities outside Europe. The focus is on attractive growth regions where demand and/or production is set to grow significantly – in contrast to the EU. ­Nordzucker intends to make use of these opportunities by producing and marketing sugar outside Europe. The objective is to sign cooperation agreements with local, national or international partners.

In addition to sugar, ­Nordzucker sells products containing the herbal sweetener stevia, which caters to growing demand for natural sweeteners.

Sustainable business determines all the workflows throughout the company. Long-term success can only be secured by running a sustainable business and by including environmental protection, energy efficiency and social aspects in business decisions. Product safety and occupational health and safety also have top priority within the company. N ­ ordzucker sets itself ambitious targets in all areas of sustainability, which result in continuous improvements. It is particularly important to include the entire value chain, from the beet to the customer, in the sustainability assessment. ­ ordzucker’s aim is to offer high-quality products and firstN class service at a reasonable price. N ­ ordzucker therefore sets great store by customer orientation, individual solutions, great flexibility and dependability of supplies. Its broad product range, which includes a wide assortment of speciality products, adds value for customers. ­ ordzucker works continuously to improve efficiency along N the entire value chain. Efforts are particularly focused on steps to achieve lasting increases in the yields from beet farming.

The aim of the 20 · 20 · 20 project is for the top 20 per cent of beet farmers to achieve a yield of 20 tonnes of sugar per hectare by 2020. This will make sugar beet even more competitive in comparison with other crops, and so safeguard beet cultivation in our region for the long term. The 20 · 20 · 20 project includes elements of research work, cultivation techniques and communication of the findings, especially by means of cultivation-related advisory work.

Management report : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

A new efficiency programme named FORCE was launched in early 2015. The programme is aiming for substantial cost savings in all areas of the company. In the next three years, various sub-projects are intended to deliver annual savings across the N ­ ordzucker Group of at least EUR 50 million. The focus is on purchasing, production and all administrative areas. Furthermore, a team has been set up within the company to establish lean management methods at ­Nordzucker.

The whole management team at ­Nordzucker is being trained in this method, and initial projects have achieved substantial performance gains. All of ­Nordzucker’s efficiency programmes are aimed at further preparing the company for the changes to the market and competitive situation that will take place after 2017.

To prepare the company for the challenges it will face after the system of EU quotas expires in 2017, N ­ ordzucker has embarked on a wide-ranging programme of change that involves staff at all levels of the company. It aims to raise awareness of the market changes and to use them to devise specific activities for all areas. This will make N ­ ordzucker even more market- and customer-oriented, more efficient and effective, and further improve its sustainability and team work. The transformation process is based on the four ­Nordzucker values, which have guided the company for many years: dedication, responsibility, courage and appreciation. ­ ordzucker will therefore not only become more efficient N and more productive. An approach to sustainability that covers the entire value chain, along with a clear customer and market focus, strengthen the competitive position and are a prerequisite for additional growth in the core business. ­Nordzucker’s goal is not just to develop its strong market position within Europe, but to open up export opportunities and new growth areas outside Europe at the same time. All of its activities contribute to ­Nordzucker’s future growth and profitability.

Company management and organization The ­Nordzucker Group is managed by an Executive Board made up of several members. The Executive Board reports to the Supervisory Board, which has 21 members, of which 14 represent the shareholders and seven the employees.

The internal management of the N ­ ordzucker Group is carried out by means of financial indicators. The primary objective is to earn at least the cost of capital for the owners and lenders, and to ensure that the company has a solid longterm ­financing structure. Performance against the targets for efficiency gains is monitored regularly.

At the same time, non-financial performance indicators are becoming more important for managing all areas of the company. In the course of the 20 · 20 · 20 project, for instance, the aim is for the top 20 per cent of beet farmers to produce 20 tonnes of sugar per hectare by 2020. The company also tracks a large number of performance indicators relating to sustainability. These figures reflect the importance of environ­ mental and social aspects, and they are reported regularly on the Group’s website. Performance against non-financial targets is monitored regularly and used to take decisions on additional measures.

Since late 2014, ­Nordzucker has been managed and controlled purely in terms of functions. Within the Executive Board, the respective functions are the Chairman (responsible for HR, Legal, Business Development, Internal Audit and Communications), Beet Procurement, Production and Purchasing, Marketing and Sales, and Finance. The business team, which consists of five managers, is responsible for the operational management of the company at the level directly below the Executive Board and prepares decisions for the Board. Management is strictly by function, meaning that each area of functional responsibility covers all the subsidiaries and plants and all the countries in which ­Nordzucker operates.

The previous matrix organization, which combined regional and functional elements, has therefore been considerably simplified and streamlined. The functional structure pools

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N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Management report

professional expertise across the company and uses the existing knowledge to the benefit of the company at all of its sites. Standardizing and harmonizing all processes facilitates international cooperation within the ­Nordzucker Group. As ‘One Company’ (‘One ­Nordzucker’), the business is much more powerful; efficiency is thereby increased, process quality improved, the transfer of knowledge enabled and cost savings achieved thanks to clear responsibilities without overlaps.

Shareholder structure of N ­ ordzucker AG ­ ordzucker Holding AG holds 84.1 per cent of the shares N in ­Nordzucker AG. A further 10.8 per cent is held by UnionZucker Südhannover Gesellschaft mit beschränkter Haftung.

5.1 per cent of the capital is held by other shareholders. ­Nordzucker AG shares are not traded on a stock exchange. A large proportion of the shareholders in ­Nordzucker Holding AG and ­Nordzucker AG, as well as the shareholders of UnionZucker Südhannover Gesellschaft mit beschränkter Haftung, are also active farmers who sell their beet to ­Nordzucker AG. No single shareholder of ­Nordzucker Holding AG has more than 25 per cent of the shares.

SHAR E HO L D E R S T RU C T U R E O F ­N O R D Z U CK E R AG

EUR 123.7m share capital

84.1 % ­Nordzucker Holding AG 10.8 % Union-Zucker Südhannover GmbH 5.1 % Other shareholders

M AC R O ECO N O M I C S I T UAT I O N Global economic growth slowed last year according to the Organisation for Economic Co-operation and Development (OECD). While global gross domestic product (GDP) increased by 3.4 per cent in 2014, growth in 2015 only amounted to 2.9 per cent. Slower development in China and in countries dependent on exports of raw materials was the main cause.

Growth in the European Union picked up slightly from 1.4 per cent to 1.9 per cent. Uncertainty surrounding the aid packages for Greece barely affected the economy in the remaining EU states. Lower energy costs and a still relatively weak Euro compared with the US Dollar did have a positive impact on economic growth, however. The European Central Bank’s strict policy of low interest rates also encouraged another considerable increase in gross investment in the EU (up by 3.3 per cent, against 2.7 per cent the previous year).

Economic growth in Germany came to 1.7 per cent in 2015, according to the Federal Statistical Office (2014: 1.6 per cent), less than was reported by other European countries. The most important driver of German growth was the increase of 1.9 per cent in consumer spending, the highest figure since 2000. Higher consumer demand was boosted by a rise in employment and increases in wages and salaries. A strong influx of migrants also increased domestic demand.

Management report : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

E U PR I C E S A N D WO RL D M A R K E T P RI C E S F OR S UG AR, 2 0 0 6 – 2 0 1 6

750 700 632 €/t

650 600 550

542 €/t

500

427 €/t

450 400

404 €/t

350 300

386 €/t

250 200 150 JUL 06

APR 07

JAN 08

OCT 08

EU reference price €/t

JUL 09

APR 10

JAN 11

OCT 11

JUL 12

EU market price €/t

APR 13

JAN 14

OCT 14

JUL 15

APR 16

Global market price €/t

Source: EU-Price-Reporting, 28 April 2016

THE SUGAR MARKET Sector developments World sugar market According to market research institute F. O. Licht, a decline in sugar production is expected for the third year in a row in the 2015/2016 campaign year. Production volume for 2014/2015 came to 181.7 million tonnes, but only 176.9 million tonnes are forecast for the 2015/2016 campaign. Sugar consumption, however, is expected to continue its recent growth trend, increasing from 178.9 million tonnes in 2014/2015 to 181.7 million tonnes in 2015/2016. This would mean that, for the first time in six years, sugar consumption would exceed production and stocks at the end of 2015/2016 would fall to 72.0 (2014/2015: 78.4) million tonnes. A large proportion of these stocks are in markets such as China and the EU, where they are not accessible for the global market. Stocks at year-end 2015/2016 will therefore represent 39.6 (2014/2015: 43.9) per cent of annual consumption.

The five biggest producer countries will reduce their sugar production. Although F. O. Licht predicts that Brazil, the world’s largest producer, will contribute higher volumes in 2015/2016, it is expecting much lower production volumes for all other producers, especially India and the EU. In India, the country with the world’s second largest sugar industry, the weather conditions were not very favourable. Forecast

sugar volumes for its 2015/2016 campaign are 28.3 million tonnes. This is 2.5 million tonnes less than in 2014/2015 (30.8 million tonnes). Although production volume is still higher than domestic consumption, exports are not an attractive option for India. The expectation is that export volumes will be well below the government’s target of three million tonnes.

Global sugar production was still higher than consumption in the 2014/2015 sugar marketing year, meaning that the production surplus, in combination with a rise in the US Dollar against the Brazilian real, put pressure on global market prices for sugar. In August 2015, the price for raw sugar fell to USD 229 per tonne. This is the lowest level since 2008. The average global market price in the 2014/2015 campaign year was USD 295 per tonne. A stronger El Niño caused lower harvests overall in the producer countries and meant that instead of surpluses as in the past, a deficit is now expected for the 2015/2016 campaign. Combined with the assumption that prices were too low to ensure adequate global sugar supplies in the medium term, this caused the downward trend to reverse in the 2015/2016 sugar marketing year. In the first five months, global market prices rose to an average of USD 316 per tonne. This represents an increase of 38 per cent compared with August 2015. The rise in the US Dollar caused prices to go up even more steeply on a Euro basis: from EUR 201 per tonne in August 2015 to EUR 288 per tonne in the current 2015/2016 sugar marketing year, which is an increase of 44 per cent.

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N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Management report

GLO BAL SUG AR BA L A N C E

2015/16e

2014/15

2013/14

2012/13

2011/12

78,445

77,491

72,788

63,684

57,131

55,952

Production

176,904

181,730

181,348

184,099

174,576

165,201

Consumption

in 1.000 mt raw value Opening Stocks

2010/11

181,659

178,852

175,997

172,462

168,425

162,775

Unrecorded disappearance

– 1,736

– 1,925

– 647

– 2,534

403

– 1,247

Ending Stocks

71,954

78,445

77,491

72,788

63,684

57,131

39.61 %

43.86 %

44.03 %

42.21 %

37.81 %

35.10 %

– 6,491

953

4,704

9,103

6,553

1,179

Stock-to-use-ratio Surplus/Deficit Source: F. O. Licht Weltzuckerbilanz, February 2016

TO P 5 PRO D UC E R S

2015/16e

2014/15

2013/14

2012/13

2011/12

2010/11

Brazil

38,866

34,706

39,534

41,162

35,291

38,725

India

28,260

30,790

26,580

27,332

28,632

26,510

EU

14,958

19,062

17,102

17,420

19,072

15,902

China

10,870

11,474

14,476

14,193

12,519

11,363

Thailand

10,300

11,579

11,677

10,346

10,569

9,919

in 1.000 mt raw value

Source: F. O. Licht Weltzuckerbilanz, February 2016

TO P 5 CO NSU M E R S

2015/16e

2014/15

2013/14

2012/13

2011/12

2010/11

Indien

27,717

27,283

26,277

25,351

24,568

22,575

EU

19,334

19,282

19,268

19,091

19,018

19,200

China

17,100

16,600

16,150

15,760

15,300

14,730

Brazil

12,454

12,423

12,585

12,726

12,668

12,611

USA

10,968

10,955

11,109

10,661

10,205

10,379

in 1.000 mt raw value

Source: F. O. Licht Weltzuckerbilanz, February 2016

The sugar market in the EU Until 30 September 2017, the EU will distinguish between quota sugar for human consumption and non-quota sugar for industrial use (especially the production of bioethanol) and export. Sugar for human consumption can also be obtained by imports from ACP/LDC countries or by CXL imports. ­Nordzucker’s 2015/2016 financial year falls within two EU sugar marketing years: 2014/2015 and 2015/2016 (each from 1 October to 30 September).

When the quota system for sugar and the minimum price for sugar beet no longer apply from October 2017, the EU sugar market will be faced with fundamental changes. There will then be no limits on the production of sugar for human consumption or on the production of isoglucose in the EU.

This will not only considerably intensify competition among sugar producers, but also competition with isoglucose.

Following record harvests in Europe, the European Commission reported sugar production of 20.8 million tonnes in the 2014/2015 sugar marketing year. This was supplemented by imports of 3.4 million tonnes. With prices much lower, imports therefore continued to decline. Consumption came to 19.4 million tonnes. Taking stocks at the beginning of the period and exports into account, stocks in the EU at the end of the period came to 4.0 million tonnes. The EU was also well supplied with quota sugar. At the end of the sugar marketing year on 30 September 2015, there were 1.3 million tonnes from European production and imports.

Management report : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

A good harvest and the ensuing sales pressure, ample supplies of quota sugar and weak global market prices all put the market for quota sugar under pressure. At the same time, all European sugar producers want to safeguard their market share for the period after the end of the quota system.

This caused a further fall in the price for quota sugar in the 2014/2015 sugar marketing year: According to the European Commission, the average market price in the EU at the beginning of the 2014/2015 sugar marketing year (October 2014) was EUR 455 per tonne of white sugar, but at the end of the 2014/2015 sugar marketing year in September 2015, it had fallen to EUR 425 per tonne.

After a record year in 2014/2015, the production volume in the 2015/2016 sugar marketing year was only about 18.3 million tonnes. This decline was due to somewhat more difficult weather conditions and to a steep fall of some 14 per cent, according to the European Commission, in the area under cultivation. In addition to domestic EU production, imports of 3.6 million tonnes were expected for the 2015/2016 sugar marketing year. The European Commission’s consumption estimate is 19.2 million tonnes. Taking account of stocks at the beginning of the period and exports, total sugar stocks of 1.2 million tonnes are forecast for the end of the period.

Reduced availability of quota sugar is also expected as of 30 September 2016, when stocks are forecast to fall to 0.7 million tonnes. Despite these lower stock levels, there should be enough quota sugar available for consumers in Europe, even without any further intervention by the European Commission. It has not yet been decided whether and to what extent the Commission will further increase pressure on the markets by exempting imports from duty or by converting non-quota sugar.

The 2015/2016 sugar marketing year started with a very low average price of EUR 417. By January 2016, the average price reported by the European Commission had recovered to EUR 429 per tonne of white sugar.

Business performance Industrial sector In the previous financial year, the ­ Nordzucker Group switched to a functional organizational structure, and last year the sales division for industrial customers was managed centrally across all regions for the first time. The functional sales structure thereby replaced the previous three regions Central, ­Northern and Eastern Europe. Local sales offices are still responsible for account management. Industrial customers include the food and beverage industry as well as users of industrial sugar ­(fermentation processes in the chemical industry, for example), both within and outside the EU. ­ ordzucker sees itself as a service provider that offers a wide N range of services in addition to the sugar product, and that provides competent advice to its customers on the use of sweeteners. High standards of food safety and sustainability complete the portfolio.

In the EU, the 2015/2016 financial year was marked by preparations for the period after quotas expire in October 2017. All the sugar producers jockeyed for the best possible starting position, in order to maintain or expand market share. Tactics involved focussing on particular customer groups or regions, for example. High sugar stocks from prior years meant that the 2015/2016 financial year was also characterized by programmes to reduce those stocks. These factors contributed to a steadily more difficult market environment overall and will continue to have a significant effect on future periods.

Despite these challenging conditions, ­Nordzucker’s industrial segment was able to report sales volumes in the 2015/2016 financial year that were on a par with the previous year.

Although the comparatively minor business with non-quota sugar was down, the food and beverage industry achieved significant growth. All of the countries in which ­Nordzucker has significant operations contributed to this performance.

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N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Management report

Retail sector The retail sector comprises all sales channels for consumer products. These include retailers of food and household products as well as discount supermarkets. This sales division is also managed centrally across all regions, whereby local sales offices are responsible for local account management. ­ ordzucker sees itself as a full-range provider when it comes N to sugar and has a correspondingly broad range of products.

In addition to standard products, this includes a large number of speciality sugars. They are marketed both under the ­Nordzucker brands – such as SweetFamily or Dansukker – as well as under customers’ own white-label brands. Reliable standards of quality, a high level of availability and a strong brand image are what characterize ­Nordzucker as a partner to the retail industry.

The retail sector has been exposed to the same factors as the industrial sector. In this challenging environment, ­Nordzucker’s sales volumes were down slightly on the previous year. Germany, the biggest retail market in Europe, again saw intense competition in the past financial year.

National sugar producers and foreign competitors battled for large market share in an attempt to gain the best position for the post-2017 era. N ­ ordzucker stood its ground well in this difficult environment. The Group maintained its good position in Scandinavian markets, even though competition also increased here, especially for standard products. Eastern European markets were stable overall.

M A R K E T F O R A N I M A L F E E D A N D M O L A SS E S Sector developments In the course of the sugar production process, beet pulp is made into animal feed. Dried beet pellets, in particular, are a high-quality component of animal feed for the mixed feed industry. Pressed pulp that has not been dried is also used as animal feed and in biogas plants. Beet molasses is another by-product that is used as an important feedstock in the fermentation industry, especially to make alcohol and yeasts. Molasses and vinasse from the bioethanol plant in ­Klein ­Wanzleben are also used to make mixed animal feed.

Demand for mixed animal feed declined in 2015. This was partly due to lower demand for meat and dairy products, which, in turn, was the result of bans on the export of food to Russia and lower demand from China. Abolishing the system of milk quotas in Europe also caused dairy farmers to increase their production, which resulted in surpluses and an associated fall in prices. In response to pricing pressure, producers increasingly used their own animal feed to cut costs. Lastly, specialized production sites in North Germany, Denmark and the Netherlands cut their milk volumes again due to the tense situation on the market, which had an adverse effect on demand for animal feed.

Business performance With prices stable overall, ­Nordzucker increased the sales volume of molasses year on year by 1.5 per cent in 2015/2016.

Lower demand for animal feed was offset by higher sales to the fermentation industry. Higher volumes than in prior years were also used for the production of bioethanol. ­ ordzucker was unable to match the previous year’s sales N volumes for sugar beet pellets because of a decline in production volumes. Prices also fell as a result of the market factors described above. Overall, sales volumes in the 2015/2016 financial year were nearly 9 per cent down on the previous year. Although sales from German production matched the previous year’s figures, sales in other countries dropped sharply.

Another important area of the animal feed business is the marketing of highly compressed beet cossettes as fresh feed or as a conserved silage product. Prices were down and sales volumes fell steeply by 44 per cent in 2015/2016 as

Management report : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

a result of much lower production in the 2015/2016 campaign. Although volumes of beet cossettes were much lower, the product was nonetheless offered to all customers who expressed an interest.

Sales volumes of vinasse increased by 14 per cent in 2015/2016 as a result of greater in-house bioethanol production, while prices remained high.

MARKET FOR BIOETHANOL Sector developments Prices fluctuated widely on the European bioethanol market in 2015/2016. Prices for ethanol FOB Rotterdam fell to a low of EUR 417/m³ in January 2015, but recovered to a high of around EUR 680/m³ in December 2015, before falling back to just under EUR 500/m³ in mid-February 2016. The temporary shutdown of a large ethanol plant in the UK and uncertainty after one of the biggest producers applied for creditor protection initially drove up prices for bioethanol. Prices again fell sharply in the first quarter of 2016 because demand in the spring drops considerably for seasonal reasons.

Ethanol production in 2015 increased year on year by some 2 per cent in Germany, but demand contracted by around 4.5 per cent. The reason for this was the introduction of a greenhouse gas reduction quota in Germany. In contrast to other EU states, the amount of bioethanol that has to be blended with petrol in Germany now depends on the greenhouse gas emissions actually avoided by the use of biofuels.

Because the relative reduction in greenhouse gases achieved by the use of biofuels was higher than average in Germany in 2015, lower volumes of biofuel were blended overall.

Business performance ­ ordzucker has responded to the interim price recovery on N the bioethanol market by increasing its capacity uti­lization and has increased marketing volumes of bioethanol by around 10 per cent year on year. This required further efficiency gains in the fermentation process, which meant that energy consumption was reduced at the same time. A much more favourable market environment than in previous years also enabled N ­ ordzucker to raise its prices for bioethanol considerably. Most of the bioethanol produced by ­Nordzucker was sold in Germany, where transport is cheaper. In addition to its use as a petrol additive, bioethanol was increasingly marketed for technical applications in 2015.

MARKET FOR SWEETENERS Sector developments The market for stevia (steviol glycosides) and products sweetened with stevia has grown steadily since stevia was approved by the EU for food and beverages in 2011, even though it is altogether still below our original expectations.

Other products are currently still under development. These activities will successively boost market volumes, which are still low. The launch of a caffeinated soft drink sweetened with stevia has accelerated this trend, but it is still well below our original expectations.

Business performance ­ ordzucker addresses the market for stevia sweeteners in N Northern and Eastern Europe in a joint venture with the stevia producer PureCircle. NP Sweet A/S increased its revenues with regional European food and beverage customers year on year by around 10 per cent in 2015/2016. NP Sweet A/S is working on a large number of projects with various major customers in Germany and Europe, which means that revenue growth should continue in the years to come.

39

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N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Management report

G R O U P C A M PA I G N R E S U LT S

Beet yield t/ha

Sugar content %

Sugar yield t/ha

Campaign length d

2015/16

66.4

17.5

11.6

88

2014/15

76.3

17.3

13.2

125

B E E T C U LT I VAT I O N A N D S U G A R P R O D U C T I O N In the 2015 growing year, the conditions for beet development varied considerably, both between countries and during the vegetation period. After early sowing in Germany, the weather conditions until early summer suggested that the harvest would be below average. Sufficient rainfall, combined with above-average temperatures from late July, more than made up for deficient growth, however, enabling beet farmers in Germany to achieve the second highest sugar yield ever recorded. Weather conditions were good throughout the campaign. With the exception of a cool spring, good weather conditions in Denmark over the entire vegetation period led to a sugar yield that was around 5 per cent above the long-term mean. Late sowing in Sweden was made up for by good growing conditions during the vegetation period.

Heavy rain here from late October made the harvesting and loading conditions challenging. Beet cultivation in Finland suffered from cold and generally unfavourable weather conditions over the entire growing period. Severe frosts at the

beginning of beet processing stopped any further growth.

The harvest was well below the long-term mean. Slovakia and Lithuania reported slightly below-average sugar yields due to dry weather. In Poland, a long period of dry weather, particularly in the growing region around Chelmza, had a severe impact on beet yields. Sugar yields in Poland were some 13 per cent down on the long-term mean. The average beet yield for the Group was 66.4 tonnes per hectare (previous year: 76.3 tonnes). The sugar content came to 17.5 per cent (previous year: 17.3 per cent), which represented an average sugar yield of 11.6 tonnes per hectare (previous year: 13.2 tonnes). This was almost on a par with the five-year mean of 11.7 tonnes per hectare.

The area under cultivation was reduced significantly to around 191,000 hectares in 2015/2016 (previous year: 242,000 hectares), in order to cut the high stocks resulting from the very good harvest in the 2014/2015 campaign. Across the Group during the 2015/2016 campaign, N ­ ordzucker produced some 2.0 million tonnes of sugar from beet (previous year: AV ERAG E S UG AR YIELD ­N ORDZUCKER

tonnes per hectare

SU G AR PRO DU C T IO N ­N O RD Z U CK E R G RO U P

in millions of tonnes 14 3.0

2.9

2.8

2.5

2.9

12

2.5 2.0

2.0 1.0

4

0.5

2 2012/13

2013/14

2014/15

2015/16

11.3

2011/12

2012/13

2013/14

11.6

8 6

2011/12

11.7

10

1.5

0

13.2

11.9

0

2014/15

2015/16

Management report : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

2.9 million tonnes). The campaign lasted for 88 days, which was much shorter than the previous year (125 days).

sugar and pellets, as well as lower pellet prices, also contributed to the decline.

Beet processing in the N ­ ordzucker factories mostly went smoothly thanks to targeted investments and forward-looking maintenance. The beet farmers, their service providers, as well as beet deliveries and production all worked together excellently, and in addition to the generally good weather, helped to ensure that the campaign ran smoothly. ­Nordzucker has a sophisticated and highly efficient system of beet logistics in the Group’s regions. This has been and is still being developed to prepare for the expiry of quotas in October 2017 and to reflect country-specific requirements.

Revenues of EUR 1,152.1 million were generated with quota sugar. Quota-sugar revenues were therefore EUR 187.1 million down on the previous year’s figure of EUR 1,339.2 million. The fall in prices was only partly offset by higher sales volumes.

E A R N I N G S A N D F I N A N C I A L P OS I T I O N A N D N E T A SS E T S Earnings position As in the previous year, the N ­ ordzucker Group’s profitability was again low in the 2015/2016 reporting year. This was mainly due to the ongoing price erosion for quota sugar.

The EBITDA margin is calculated by dividing EBITDA (oper­ ating result before depreciation, amortization and impairment) by revenues. In the year under review, the figure came to 5.6 per cent (previous year: 7.5 per cent), and so fell short of the target of 15.0 per cent.

Revenues from non-quota sugar did not match the previous year’s either. Here, revenues fell by EUR 39.4 million to EUR 121.9 million (previous year: EUR 161.3 million).

Revenues from the sale of bioethanol came to EUR 94.9 million, which was higher than the previous year’s figure of EUR 86.7 million due to higher sales volumes and prices.

Revenues from by-products include revenues from the sale of molasses and animal feed (dried pulp pellets and pressed pulp). They fell by EUR 30.0 million to EUR 153.7 million (previous year: EUR 183.7 million), largely due to lower sales volumes. Other revenues fell from EUR 95.4 million to EUR 84.9 million.

At the end of the reporting year, the production costs amounted to EUR 1,365.2 million (previous year: EUR 1,552.7 million). N ­ ordzucker was able to purchase the beet more cheaply given the much lower prices for sugar. Moreover, a considerable amount of the sugar sold in 2015/2016 came from the very large 2014/2015 campaign.

The return on sales, calculated as net income (after minority interests) divided by annual revenue, came to 1.0 per cent in the reporting year compared with 1.1 per cent the previous year. This was also below the target of 5.0 per cent.

Distribution costs fell significantly to EUR 153.9 million (previous year: EUR 169.1 million). This was primarily due to lower leasing costs for external storage, lower transport costs for sugar and other products as well as lower depreciation, amortization and impairment in the sales function.

Revenues came to EUR 1,607.4 million, a significant decline of EUR 258.9 million on the previous year’s figure of EUR 1,866.3 million. The fall in revenues was principally due to the fall in prices for quota sugar. Lower sales volumes of non-quota

Administrative costs of EUR 79.3 million were also down on the previous year’s figure of EUR 84.0 million. This was mainly due to lower expenses for travel, insurance, as well as training, hospitality and conferences in this area.

CO NSO L IDAT E D RE V E N U E S

CON S OLIDATED EBIT

in EUR m

in EUR m

3,000 2,500 2,000

600 2,443

2,361

2,018

1,866

1,500

1,607

400 200

500

100

0

0

2012/13

2013/14

2014/15

2015/16

315

300

1,000

2011/12

506 *

500

2011/12

* adopted

299

2012/13

2013/14

26

16

2014/15

2015/16

41

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N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Management report

Production, sales, administrative and other expenses included total personnel expenses of EUR 186.6 million (previous year: EUR 195.3 million) and of EUR 73.7 million in depreciation of property, plant and equipment (previous year: EUR 79.0 million).

Other income came to EUR 42.4 million and was therefore well below last year’s figure of EUR 62.0 million. This is mainly due to much higher income from the reversal of provisions for litigation in the previous year.

Other expenses came to EUR 35.2 million at the end of the reporting year and were therefore well down on the previous year’s figure of EUR 96.5 million. Other impairments of EUR 34.4 million were recognized in the previous year, almost exclusively for intangible assets in connection with the acquisition of Nordic Sugar. Expenses for damages were also much lower in the reporting year.

In total, the N ­ ordzucker Group reported an operating result (EBIT) of EUR 16.2 million, as against EUR 26.0 million in the previous year. The operating result before depreciation, amortization and impairment (EBITDA) came to EUR 89.8 million (previous year: EUR 140.2 million).

Financial income rose from EUR 7.2 million to EUR 13.6 million. This was mainly due to interest income recognized in the reporting year from the court-ordered repayment of production levies for prior years.

Financial expenses are largely made up of interest and similar expenses. Finance costs decreased year on year by EUR 2.7 million. Lower interest expenses for pension provisions was the main reason for this.

The increase in the tax ratio to 32.8 per cent (previous year: 10.9 per cent) was primarily the result of differing tax rates.

Losses in foreign subsidiaries meant that the lower tax rates there had a negative impact. Positive earnings in foreign subsidiaries in the previous year had the opposite effect.

Furthermore, higher tax back-payments for prior years also increased the tax ratio, while tax refunds for previous years were obtained in 2014/2015.

In total, N ­ ordzucker reported net income before minority interests of EUR 14.9 million, as against EUR 20.0 million in the previous year. After deduction of minority interests, this resulted in consolidated comprehensive income of EUR 15.6 million, compared with EUR 20.7 million in the previous year.

Net assets position Total assets for the ­Nordzucker Group amounted to EUR 2,012.7 million at the end of the reporting year, a decline of EUR 130.8 million on the previous year’s figure of EUR 2,143.5 million.

Intangible assets remained at an almost constant level at EUR 22.3 million (previous year: EUR 25.3 million).

In the reporting year, the N ­ ordzucker Group invested EUR 57.9 million in property, plant and equipment (previous year: EUR 78.6 million). Capital expenditure was offset by current depreciation and amortization of EUR 68.5 million (previous year: EUR 68.5 million) and other impairments of EUR 0.6 million (previous year: EUR 1.0 million). Overall, property, plant and equipment fell slightly from EUR 848.8 million in the previous year to EUR 834.8 million.

CON S OLIDATED N ET IN COME

in EUR m CO NSO L IDAT E D E B I T DA

in EUR m

400 594

600 500 400

300 472

420

250

209

208

200

300

150

200

140

100 0

369*

350

2011/12

2012/13

2013/14

2014/15

100 90 2015/16

50 0

20 2011/12

* adopted

2012/13

2013/14

2014/15

15 2015/16

Management report : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

Financial investments came to EUR 31.2 million and were therefore up on the previous year’s figure of EUR 26.5 million. This increase was due to the acquisition of the shares in August Töpfer Zuckerhandelsgesellschaft mbH & Co. KG, Hamburg.

Inventories declined by EUR 232.2 million to EUR 753.9 million (previous year: EUR 986.1 million). Finished goods and merchandise fell by EUR 230.4 million to EUR 655.0 million.

Raw materials, consumables and supplies went up by EUR 3.8 million to EUR 57.3 million (previous year: EUR 53.5 million).

Current receivables and other assets were EUR 14.5 million lower, at EUR 187.2 million compared with EUR 201.7 million in the previous year. Trade receivables fell from EUR 139.0 million to 128.3 million, largely due to the sale of receivables as part of the ABS programme. Current income tax receivables went down by EUR 6.5 million to EUR 0.3 million.

Financial and other assets were up by EUR 2.8 million overall to EUR 58.7 million. This was mainly due to a receivable for interest income on production levies recognized in the reporting year as well as to higher claims for damages than in the previous year.

As of the reporting date, cash and cash equivalents exceeded financial liabilities by EUR 164.4 million (previous year: EUR 37.3 million).

Equity rose slightly by EUR 6.9 million in total to EUR 1,278.4 million (previous year: EUR 1,271.5 million). Consolidated net income for the period increased equity by EUR 14.9 million (previous year: EUR 20.0 million). However, equity was reduced by other income of EUR – 1.3 million recognized in other comprehensive income and in the statement of comprehensive income (EUR 0.8 million from the remeasurement of defined benefit plans after adjustment for deferred taxes and EUR – 2.1 million from other matters). In the previous year, other comprehensive income included a negative result of EUR – 65.4 million (EUR – 52.9 million from the remeasurement of defined benefit plans after adjustment for deferred taxes and EUR – 12.5 million from other matters). Equity was also diminished by the payment of dividends amounting to EUR 6.8 million (previous year: EUR 69.4 million) to shareholders of N ­ ordzucker AG and minority shareholders. The equity ratio was 63.5 per cent; an increase of 4.2 percentage points on the previous year (59.3 per cent). The figure was again well above the Group target of 30.0 per cent.

BR E AK D OW N O F T H E A S S E T S A N D L I A B I L I T I E S M AKIN G U P T HE 2015/ 2 0 1 6 BA L A N C E S H E E T TOTA L

in EUR m

2,200

2,013

2,013

2,000

N ET DEBT (–)/ IN V ES TMEN T (+ )

1,800 1,600 1,400

in EUR m 45 %

64 %

250

1,200

200

1,000 800 600

37 %

19 %

0

100

52

50

400 200

164

150 37

0 18 %

Assets

17 %

Equity & liabilities

– 50 – 150

Non-current assets

Equity

Inventories

Non-current liabilities

– 250

Current liabilities

– 350

Other current assets

– 59

– 100 – 200 – 300

– 249

2011/12

2012/13

2013/14

2014/15

2015/16

43

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N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Management report

Non-current provisions and liabilities rose to EUR 376.9 million (previous year: EUR 359.0 million). The total includes non-current provisions of EUR 272.7 million (previous year: EUR 252.9 million), of which EUR 221.8 million (previous year: EUR 219.3 million) are for pension obligations. Non-­current liabilities consist mostly of deferred tax liabilities, which fell from EUR 84.0 million to EUR 83.1 million in the reporting year.

Current provisions and liabilities declined sharply from EUR 512.9 million to EUR 357.4 million. Trade payables to farmers of EUR 183.2 million, in particular, were significantly down on the previous year (EUR 327.3 million). Other liabilities were up from EUR 45.1 million to EUR 47.5 million.

Financial position Cash flow from operating activities of EUR 198.6 million was much higher than in the previous year (EUR 135.0 million). The increase was due, in particular, to the much higher ­depletion of stocks than in the previous year.

Cash flow from investing activities of EUR – 64.8 million was down on the previous year (EUR – 78.6 million), since capital expenditure was cut sharply in expectation of a difficult 2015/2016 financial year.

C ASH FLOW FRO M O P E R AT I N G AC T I V I T I E S

in EUR m

350

313

300 250

285

222

199

200 135

150 100 50 0

2011/12

2012/13

2013/14

2014/15

2015/16

Cash flow from financing activities improved from EUR – 69.6 million to EUR – 6.9 million. This was because dividends of EUR 6.8 million paid to shareholders in the reporting year were lower than the previous year’s figure of EUR 69.4 million.

As of 29 February 2016, cash and cash equivalents amounted to EUR 171.8 million (previous year: EUR 45.0 million).

Overall assessment of earnings and financial position and net assets ­ ordzucker missed its earnings targets in the 2015/2016 N reporting year. Neither the target for the EBITDA margin nor for the return on sales were achieved. This was due to the continuing steep fall in prices for quota sugar.

The ­Nordzucker Group’s net assets and financial position are nonetheless still considered to be good. The equity ratio improved year on year to 63.5 per cent; well above the Group’s target of 30 per cent. As of the end of the reporting period, the company had virtually no financial liabilities (EUR 7.4 million). Cash and cash equivalents exceeded financial liabilities by EUR 164.4 million, an even larger margin than in the previous year. Although earnings declined, cash flow from operating activities was still high.

Management report : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

C A P I TA L E X P E N D I T U R E

FINANCING

­ ordzucker invested EUR 60.1 million in property, plant and N equipment and intangible assets in the 2015/2016 financial year (previous year: EUR 82.3 million). As in the previous year, the focus was on increasing efficiency, meeting regulatory requirements and replacing existing assets. The main investments related to the replacement of a by-product evaporation crystallization tower and the installation of a new control centre at the plant in Clauen, the expansion of slicer stations in Uelzen and Opalenica, the installation of a new lime kiln in Chelmza and improvements to the burner and exhaust gas purification in the boiler house in Nyköping. A section of the waste water treatment system at the plant in Nyköping was also modernized. Other projects have already been launched, such as the overhaul of fondant production at the liquid sugar plant in Nordstemmen, the replacement of the white sugar evaporation crystallization tower in Clauen and the modernization of beet processing in Opalenica.

There were investment commitments of EUR 11.9 million as of the reporting date (previous year: EUR 8.3 million). These commitments will be financed by cash flow from operating activities.

Responsibilities and objectives of financial management The main responsibilities of ­Nordzucker’s financial management are to manage and control flows of funds for the entire Group on the basis of clearly defined criteria. The main aim is to ensure that sufficient liquidity is available at all times.

In view of increasing volatility on international markets, the management of raw material, interest rate and exchange rate risks is also a priority.

The financial management function is also responsible for developing and executing financing strategies. It also maintains close contact with ­Nordzucker’s banks.

As of the reporting date, the N ­ ordzucker Group could draw on a total of EUR 400.0 million in unused credit lines (previous year: EUR 400.0 million).

In addition to the existing sources of funding, a programme of asset-backed securities (ABS) was set up in 2015/2016 to sell up to EUR 100.0 million in trade receivables from the ­Nordzucker companies. EUR 32.0 million had been sold as of the reporting date.

Financing and financial covenants In March 2014, N ­ ordzucker took out a new syndicated loan. This loan gave the company much greater latitude for entrepreneurial activities than the previous arrangement.

The original term of the loan was five years initially.

Loans of this kind include what are known as ‘financial covenants’. These consist of obligations to maintain certain financial ratios over the entire term of the loan.

The covenants are an essential element of the loan agreement. Banks use them as a tool to identify and avoid risks at an early stage by drawing conclusions from the figures about the company’s financial position. For ­Nordzucker, these have been defined at the Group level. Compliance with the covenants is monitored internally on a continual basis and reported to the banks at defined intervals during the reporting year.

C APITAL E X PE N D I T U RE I N P RO P E R T Y, PL ANT AND E Q U I P M E N T A N D I N TA N G I B L E A S S E T S

in EUR m

80 70

74

79

82

64

60

60 50 40 30 20 10 0

2011/12

2012/13

2013/14

2014/15

2015/16

In the 2015/2016 reporting year, the agreed financial ratio (EBITDA in relation to net debt) was met at all test dates. On the basis of the planning currently available for the Group, the Executive Board of N ­ ordzucker AG assumes that the covenants will not be breached in future. Further steps have been taken to improve cash flow and funding arrangements.

45

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N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Management report

In February 2016, N ­ ordzucker applied for a two-year extension of the loan until March 2021 on the basis of the agreed renewal option. By the end of the reporting period, most of the banks had agreed to extend and then to increase their commitments, meaning that ­Nordzucker AG now has credit facilities of EUR 312.6 million available until March 2021.

An ABS programme to sell trade receivables was also arranged in 2015/2016 as an alternative source of funding for the ­Nordzucker Group. This ABS programme enables ­Nordzucker to sell receivables of N ­ ordzucker AG and its operating sub­ sidiaries on a non-recourse basis. It therefore constitutes a ‘true sale’, which provides the company with cash and transfers the receivables from the balance sheet.

DIVIDEND A proposal will again be put forward at the Annual ­General ­Meeting of ­Nordzucker AG to distribute a dividend of EUR 0.10 per share of share capital for the 2015/2016 reporting year. This corresponds to a total dividend distribution of EUR 4.8 million.

E M P LOY E E S The ­Nordzucker Group had an average of 3,206 employees in the reporting year, which was much lower than the previous year (3,284 employees).

‘One ­Nordzucker’ ­ ordzucker is present in seven countries in Europe and N benefits from its international workforce. Different perspectives result in creative new solutions and promote individual learning. Employees’ development prospects depend solely on their skills, not on their nationality, ethnic origin, gender, religion, politics, disability, age or sexual identity. Its different sites in Europe and the diversity that they bring mean that ­Nordzucker considers it an obligation to support and promote openness and cultural expertise – as ‘one ­Nordzucker’. ­Nordzucker enables its staff to work in other countries and cultures for a certain period of time as part of job rotation projects. This promotes both personal development and professional skills.

As part of the change process, many areas of the company are benefiting from cross-departmental and international pilot projects, and their success can already be seen. One milestone in the harmonization and functional alignment of HR processes across the Group is the pooling of all the existing cross-country employee feedback talks (DIALOG). Quality and dependability form the basis for evaluating the performance of employees, establishing a common understanding, providing reciprocal feedback, discussing responsibilities and defining targets. The employee feedback talk also serves to discuss challenges, skills and development potential in an open atmosphere and with the aim of reaching a lasting agreement.

In the DIALOG process, the different elements of the discussion are systematically built on one another and are brought together to form an overall appraisal. It also strengthens the connections between the individual processes (e.g. performance reviews, target agreements, feedback talks and the development of skills).

DIALOG supports the four company values. The ­Nordzucker values (responsibility, dedication, courage and appreciation) guide all employees regardless of national borders and ­cultural differences, and form the basis for successful day-today working relationships.

TOTAL D IVIDE NDS, ­N O RD Z U CK E R AG

in EUR m

100

87

80

63

60

48

40 20 0

2011/12

* proposal

2012/13

2013/14

5

5*

2014/15

2015/16

Management report : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

Training at N ­ ordzucker ­ ordzucker continues to set great store by the vocational and N professional training of its staff. Qualifications, professional training and development prospects play an important role in the company.

Making the right choice when entering the workplace is a key decision in life. In November 2015, N ­ ordzucker won an award for its forward-looking apprenticeships, professional training and networked approach to working as part of the cross-industry ‘Berufe-Karussell’ (‘Career Carousel’) project.

The better the information regarding alternatives for entry into a career, the more certain the decision is likely to be on the part of N ­ ordzucker and the prospective employee. This is exactly the starting point for the practice-oriented ‘Career Carousel’, which takes the form of a condensed, two-week work experience placement. It gives participants insights into four potential career paths, both technical and commercial, in a single work placement.

In addition to vocational training, ­Nordzucker has, for a number of years, supported retraining programmes in Germany.

These are programmes intended to qualify employees for a different job to the one they originally learnt.

It is the company’s stated aim to get the entire ­Nordzucker workforce fit for the challenges of the international sugar market and to help them adapt to the new requirements. ­Nordzucker sees personnel development – regardless of the gender, age or origin of our employees – as an ongoing learning and development process, and offers a wide range of development courses throughout the Group. The ‘Sugar Academy’, an internal professional training programme at ­Nordzucker in Germany, covers a broad selection of professional and management topics as well as sector-­specific knowledge. Its courses are in great demand with the workforce.

Holistic employee concepts For several years, N ­ ordzucker has dealt with the process of change and with growing employee requirements using a holistic concept that addresses every aspect of the employee.

It focuses on the staff and their environment, because our daily routine is affected and influenced by the day-to-day influences of society, the media, the labour market, the

employer as well as private circumstances. Factors such as family, health, trust and security are becoming increasingly important in working life. That’s why one of the key tasks is to develop modern, cross-border concepts that allow staff to balance their family and private lives with their careers. This is based on dialogue with the employees – both locally and at an overarching level. A process of continual exchange makes it possible to recognize needs in order to establish targeted activities that deliver long-term success. This holistic approach not only reflects the duty of care and social responsibility that ­Nordzucker has as an employer, but also its appreciation for its staff.

Since 2011, ­Nordzucker has offered its staff in Germany a wide range of programmes and services that enable them to stay healthy, fit and active, and to achieve a better work-life balance. Across the Group, the emphasis is on prevention and healthy living. A balanced diet is an important contributing factor for a healthy life.

Women in leadership positions To implement the Act on Equal Access by Women and Men to Management Positions in the Private and Public Sectors, the Supervisory Board and Executive Board of ­Nordzucker AG have taken the following decisions, bearing in mind the company’s specific situation, in particular its business, size, proportion of international business, diversity and the current service contracts of the Executive Board members: By 30 June 2017, the targets for the proportion of women on the Supervisory Board are at least 19 per cent and on the Executive Board 0 per cent. For the first level below the Executive Board, a target of 10 per cent of women managers should be achieved by 30 June 2017. For the second level – managers with employee responsibility – the target is 20 per cent.

Currently, women account for 7 per cent of managers at the first level below the Executive Board, and 19 per cent at the second level. N ­ ordzucker continues to strive for an open company culture, in which women and men work together and take responsibility on an equal footing.

The company promotes the equality of women and men in all areas, not only in management roles. For both men and women, time as a factor in reconciling family and work life is a decisive criterion when choosing an employer. Since 2011, ­Nordzucker has supported its staff with a sustainable concept for work-life balance, which, among other things, enables a straightforward and prompt return to work after parental leave – for both mothers and fathers.

47

48

N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Management report

OPPORTUNITIES AND RISKS Risk management The purpose and aim of risk management within the ­Nordzucker Group is to identify risks from business activities at an early stage, to evaluate them and to manage them consistently. To achieve this, ­Nordzucker has introduced an integrated system throughout the company for the identification and management of risk. Risk management at the ­Nordzucker Group comprises clearly defined systems and methods that are integrated into the structural and process organization. The Group guidelines and control mechanisms are continuously reviewed, refined and adapted in line with the changing business environment.

The key building block for the risk management system is the identification and limitation of operational risks by means of the monitoring, planning, management and control systems in place in the N ­ ordzucker Group, such as the internal control system (ICS). The risk management strategy aims to identify risks at an early stage, to evaluate, avoid and mitigate them and to transfer them to third parties as appropriate. ­Nordzucker deliberately takes risks within the scope of a defined risk appetite if the risks are unavoidable or are likely to be offset by opportunities.

The risk management function discusses at regular intervals the progress made in implementing the defined steps to minimize risk with the different departments and/or managers responsible. Regular risk management reports are made to the Executive Board and Supervisory Board.

All operating and strategic decision-making always takes risk aspects into account. Scenario planning is used to examine the effects different market situations would have on the company’s business, for example. Descriptions of opportunities and risks highlight alternative developments and identify areas where action needs to be taken. Over the course of the year, the Group reporting and controlling system provides all the decision-makers responsible with continuous information on the actual business performance.

Some of the risks are transferred to third parties, such as insurance companies. The scope and amount of insurance coverage is reviewed regularly and adjusted as necessary.

Internal auditing The Internal Audit department examines and evaluates the business processes, organizational structure, risk management and internal control system (ICS) to ensure they are carried out correctly, are effective and offer value for money.

The results of every audit are recorded in an audit report and the implementation of the agreed activities is monitored systematically and regularly. As well as audits carried out on the basis of annual risk-oriented audit planning, the Internal Audit department also carries out ad hoc checks. The Internal Audit department also offers advice, such as on drawing up guidelines, optimizing business processes or improving the ­Nordzucker Group’s internal control system.

It answers directly to the Chief Executive Officer and reports regularly to the Executive Board and to the Supervisory Board’s Audit and Finance Committee. This reporting comprises the status of internal audits, the key findings of the audits as well as the implementation status of the agreed activities.

Political and legal opportunities and risks Sugar market regime In June 2013, the member states of the EU, the European ­Parliament and the European Commission only decided to extend the sugar market regime in its current form until the end of the 2016/2017 sugar marketing year on 30 September 2017. Up to this point, the sugar market regime remains the operating framework for the EU sugar industry. At the same time, the European Council, European Parliament and European Commission voted to let the sugar market regime in its current form expire thereafter.

The European Commission is still busy structuring the legal framework for the period after October 2017. This entails reviewing the relevant regulations and making any amendments as necessary.

At the beginning of the 2017/2018 sugar marketing year, the main building blocks of the existing sugar market regime – the quotas for sugar and isoglucose, as well as the minimum price for sugar beet – will be abolished. The end of the quota system also means the end of the WTO export limit, presently set at 1.37 million tonnes.

Management report : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

The impending abolition of quotas for sugar and isoglucose is already having a considerable impact on the EU sugar market. Some sugar producers have already announced their intention to expand production after the quotas expire.

Greater supplies of sugar will increase competition and this is expected to lead to crowding out among European sugar producers. Competition between sugar and isoglucose will also get much tougher, because quotas for the latter are also being abolished along with the sugar quotas. The European Commission and other market observers anticipate that a larger volume of isoglucose will be marketed in the EU in future.

In this new competitive environment, the sugar producers will have to make significant adjustments to their business model. The end of quotas means that production must focus much more closely on sales opportunities and the market than has been the case to date. Securing sufficient quantities of beet at competitive prices in the long term will play an even greater role in this environment (see section ‘Securing raw materials’). Further efficiency gains are essential in all areas of the company.

In order to prepare for the changing environment as well as possible, ­Nordzucker is working continuously to improve its competitiveness. One important area is to increase the efficiency of sugar beet cultivation compared with alternative crops. N ­ ordzucker is pooling all its activities to boost the productivity of beet cultivation in the 20 · 20 · 20 project. At the beginning of 2015, N ­ ordzucker launched a new efficiency programme called FORCE, in order to make further sustain­ able savings and efficiency gains at all the company’s functions and sites. It is not only aimed at achieving one-off cost cuts, but a permanent improvement in working processes. ­ ordzucker’s strong position in European competition and the N wide-ranging efforts to become more competitive also open up new market opportunities, both in Europe and in export markets, when the quota system comes to an end. In Europe, ­Nordzucker is preparing to safeguard and increase its market share. When the quota system ends in 2017, so does the restriction on export volumes from the EU. With its investment in August Töpfer Zuckerhandelsgesellschaft mbH & Co. KG, ­Nordzucker has improved its access to market knowledge and logistics, and thereby its competitive position, considerably.

In order to implement an adequate response to the changes in the market, a comprehensive process of change has been launched across the company, which will prepare it for the future challenges of the market. The continued development of the company culture requires the involvement of all staff who are actively engaged in the change process. In this way, all areas of the company will get to grips with the expected changes and prepare themselves intensively for the period after the expiry of the sugar market regime in 2017. The aim here is to exploit the opportunities it provides and to reduce the risks as far as possible.

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WTO negotiations At its ministerial conference held in Bali in December 2013, the members of the World Trade Organisation (WTO) agreed to define a working programme to continue the liberalization of trade.

Building on this, the WTO member states voted at the Nairobi Conference, held from 15 – 19 December 2015, to abolish export subsidies for agricultural goods five years earlier than originally planned. The deadline of 30 September 2017 was defined for phasing out export subsidies for EU sugar.

However, as EU sugar exports are no longer considered to be subsidized as of 1 October 2017, this agreement has no adverse effects for the EU sugar industry. Export subsidies in developing countries are to be abolished by the end of 2018, although export subsidies for transport, freight and marketing may still be granted until the end of 2023.

One positive aspect is that the Nairobi agreements require no changes to the current rules for sugar trading between the EU and the LDC states.

The forthcoming WTO negotiations are expected to concentrate not only on reducing customs duties and subsidies for agricultural produce, but also on cutting rates of duty for industrial goods and services. The agreement has no deadline, however, making further developments uncertain.

Regardless of the results of the Nairobi Conference, maintaining import duties is of vital importance for the European sugar sector. Reducing EU protection against imports without taking the special interests of the sugar industry into account would make competition in the EU even more intense than is already the case given the changes that will take place from 2017. Import duties protect the European sugar industry from imports in excess of those volumes that enter the European market at reduced rates or duty-free via preferential agreements with least developed countries (LDC) or, increasingly, also via bilateral trade agreements. Without EU import duties, unlimited quantities of sugar could be imported into the EU at global market prices. This, however, would discriminate against European sugar producers, because almost all the countries in the world where sugar is produced provide massive support to local producers and protect them from outside competition. Governments almost everywhere in the world intervene massively in sugar production by subsidizing local producers.

EU free trade agreements Free trade agreements are becoming more and more important for the European Union. Trade agreements signed in recent years with Moldova, Georgia, Ukraine, Columbia, Peru, Panama and states in Central America enable annual duty-free sugar imports of more than 320,000 tonnes.

Already negotiated but not yet in effect are trade agreements including ­further import contingents of sugar with South Africa, ­Ecuador, Canada, Vietnam and Singapore. Behind these import contingents are another 200,000 tonnes, plus the reduction of duties for white and raw sugar in the case of Canada and Singapore within seven and five years respectively of the agreement coming into effect.

Negotiations are under way with other countries including the USA, India, Malaysia, Thailand, Japan, Morocco, Egypt, Jordan and the Gulf states. Particularly important for the EU sugar market are the negotiations with the MERCOSUR states of the South American economic area, which are still not advancing. As the world’s largest sugar exporter, Brazil, in particular, is pressing for an import quota for sugar and ethanol. ­ ordzucker is addressing the risks from the WTO negotiations N and from free trade agreements with steps to further increase its competitiveness, as described in the ‘Sugar market regime’ section.

Additional costs for CO2 certificates As a company that emits carbon dioxide (CO2) from generating its own electricity and heat, N ­ ordzucker requires corresponding certificates for its emissions. If necessary, certificates must be acquired annually at auction or by means of other trans­ actions. The poor economic performance in Europe has meant that the price increases expected for CO2 certificates have not materialized as yet. Despite this, there is considerable political pressure to make the certificates, and so CO2 emissions, much more expensive in the years ahead. ­Nordzucker is also working continuously to cut its CO2 emissions even further by investing in energy efficiency and optimizing its operations. This not only cuts the costs expected for CO2 certificates, but also makes ­Nordzucker’s business more sustainable.

Management report : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

Legal risks The companies in the N ­ ordzucker Group are also subject to various statutory regulations, which can give rise to liability risks. They include, in particular, the sugar market regime in connection with the relevant provisions of customs and licensing law as well as food and animal feed law. Further risks can also arise from tax regulations in the various countries in which the N ­ ordzucker Group operates and from legal disputes. ­ ordzucker is of the opinion that any breaches of competition N law in Germany before 2009 that may be determined by the German competition authorities did not result in any losses to the purchasers of sugar. Even in the period examined by the competition authority, there was competition between sugar producers leading to customers switching supplier and differences in sale volumes. Furthermore, many customers bought sugar from multiple domestic and foreign sugar producers.

The sugar market is also highly regulated as a result of the sugar market regime. This applies particularly to volumes and prices. The sugar volume is limited by the quota regulations of the European sugar market regime. Prior to 2006, sugar producers could also export quota sugar onto the global market in exchange for a refund The European sugar market regime also stipulated intervention prices, i.e. minimum prices for sugar. The intervention price was replaced by the reference price in 2006 The European sugar market regime also regulated the minimum price to be paid for beet by the sugar producers.

Although N ­ ordzucker does not expect this to be the case, successful claims for damages by third parties against ­Nordzucker can nonetheless not be ruled out for the future.

Market opportunities and risks Sugar market and sugar prices Since the reform of the sugar market regime in 2006, which included substantial cuts to production quotas, fluctuations in the world market price have had a significant impact on markets in the EU. To meet demand for sugar for use in food, the EU is dependent on imports from ACP and LDC countries and world markets. From 2017, these imports are no longer necessary, but are still possible. When the quotas are abolished, the volume limits for export will also end, which is again likely to heighten the influence of the global market on European prices and to increase volatility in Europe.

As described in the ‘Sugar market regime’ section, N ­ ordzucker is preparing for these challenges by taking extensive m ­ easures to become more market and customer-oriented and to improve efficiency. Given its strong market position, solid financial structure and the steps that have already been taken or which are currently under way, the company nevertheless considers that it is well prepared for these market changes.

Long-term global demand for sugar is increasing Population growth and greater prosperity in emerging markets are behind a long-term global trend towards higher sugar consumption. For ­Nordzucker, this creates opportunities for exports or investment in the relevant regions outside the EU. Discussion about healthy eating and sugar Sugar makes people neither fat nor ill, but is part of a balanced diet. Despite this, sugar is presented in the public debate as a cause of being overweight and of diseases such as diabetes, obesity and caries. The discussion about sugar became more virulent in 2015/2016 and is now taking place across Europe. Food producers are therefore working to cut the amount of sugar in their products, and some countries have already introduced a tax on sugary foods, while others are discussing the possibility. This may lead to lower sugar consumption in Europe.

In spite of this, academic studies show that reducing sugar consumption does not necessarily lead people to lose weight.

A one-sided discussion about sugar also distracts from the real causes, which are primarily the result of lifestyle; they obscure the possibilities for preventing and mitigating excess weight and lifestyle-related diseases.

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To bring more clarity to the debate, ­Nordzucker works continuously and intensively at national and EU level, as well as within the scope of targeted work with industry associations, to provide information about the effect of sugar in food and about the links between sugar and a balanced diet as part of a healthy lifestyle. This is intended to inform politicians and consumers clearly, objectively and on the basis of scientific findings, about the interrelationships, with the aim of avoiding misleading resolutions that do not solve the problem.

Securing raw materials For farmers, sugar beet competes with other arable crops.

The decision whether to plant sugar beet or other crops depends to a large extent on relative price levels for different crops and on the yield that can be obtained regionally.

Attractive conditions for growing other crops also increase the cost pressure for purchases of sugar beet. As competition is tending to become more intense, particularly after the sugar market regime expires, it is therefore all the more important that high levels of productivity enable beet farmers to supply beet at prices that are competitive and attractive for them at the same time.

One important long-term element of securing raw materials is the 20 · 20 · 20 yield improvement programme. ­Nordzucker has set itself the Group-wide target of achieving a sugar yield of 20 tonnes per hectare with the top 20 per cent of farmers in 2020. This programme is very important for safeguarding the relative attractiveness of sugar beet cultivation compared with other arable crops, especially given the volatility of agricultural markets. To reach this target, ­Nordzucker is working closely with farmers, research institutes, agricultural associations and other companies in the value chain. ­ ordzucker signs supply contracts with the beet farmers N well in advance in order to secure volumes. The company is currently preparing intensively for when the quota system for sugar expires. Starting from the 2017 campaign, the right to supply beet to the company in Germany will be implemented as defined in the Articles of Association of N ­ ordzucker Holding AG and Union-Zucker Südhannover Gesellschaft mit beschränkter Haftung. Shareholders who themselves are beet farmers, or their tenants, will then have the right to supply a certain amount of beet to N ­ ordzucker AG for every share they hold. Volumes not assigned on the basis of these supply rights will then be offered to all beet farmers as ‘free volumes’. If the beet farmers want to supply more of these ‘free volumes’ than ­Nordzucker AG requires, then volumes and contract terms will be set according to economic criteria.

In other regions, the Group has also begun negotiations with farmers’ associations to ensure reliable, long-term supplies of beet at acceptable prices from 2017 onwards. The focus here is on fair payment for beet, reducing the costs in the value chain – with a special focus on transport costs –, a reasonable division of risk between the company and the beet farmers as well as simple, transparent processes.

Energy prices Various feedstocks are required to make sugar, particularly crude oil and coal, the price of which is subject to fluctu­ations.

In addition to the risk of changes in the price, there is also a risk that the volumes required for production are not available in time (production downtime risk). To a certain extent, ­Nordzucker mitigates the risk of changes in the price of crude oil by means of hedging transactions and long-term supply contracts. It also invests sustainably in energy-efficient machinery and equipment in order to reduce energy consumption. ­Nordzucker counters production downtime risk by testing the use of alternative raw materials, by following a forward-looking procurement policy and by establishing long-term supplier relationships.

Dependence on individual suppliers Given the limited number of suppliers and an ongoing process of concentration among them, there is a risk of increased dependence. This may cause problems in the production process (in the event of insolvency or supply difficulties) or lead to price increases. Cutting procurement costs then becomes much more difficult.

To ensure that ­Nordzucker has low-cost access to key materials at all times, cooperation has been intensified with the departments that consume supplies, in order to determine purchasing requirements in good time and to optimize the procurement process. Across the Group, critical spare parts have been identified, acquired and stored, which has reduced the procurement risk.

One strategic objective of procurement is to diversify sources of supply. This means that for all critical goods and services to be purchased, there must be several suppliers, who are to be identified, evaluated and developed. Global procurement marketing was further intensified to achieve this. Wide-ranging steps to optimize costs and processes in procurement have also been identified as part of the FORCE efficiency programme.

Management report : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

Operating risks Longer campaigns To boost productivity, the length of the campaign has generally been increased in the plants since 2009 to an average of 120 days, although in the last campaign, the market situation meant that the plants were in operation for fewer than 100 days on average. Longer campaigns entail two risks. One is that the onset of winter weather can severely hamper beet harvesting, logistics and processing. The other is that longer campaigns make production downtime more likely. ­ ordzucker has therefore taken wide-ranging precautions N both in the field and in the plant to minimize these risks.

The process of covering the beet with a sheet of protective fleece has been optimized in recent years. ­Nordzucker has also improved the technical processes in the plants to ensure they are adapted as well as possible to processing beet which may have frost damage.

Risk-oriented maintenance was introduced some years ago to reduce the risk of downtime and will now be applied systematically throughout the Group as part of the new organizational structure. Even greater use is to be made of analytical methods in future, in order to carry out specific maintenance work as appropriate. ­ ordzucker has also taken out production downtime insurN ance to reduce its exposure further.

Environment Environmental impacts cannot be avoided altogether when sugar is produced.

They include airborne emissions (odours, noise), waste disposal and waste water treatment. Risks arise from the potential for exceeding limits, complaints from neighbours or new statutory regulations. ­ ordzucker gives high priority to limiting detrimental environN mental effects as far as possible. Investments to avoid noise and odours are an important part of capital expenditure every year.

In recent years, for example, key focus areas have been the improvement of waste water treatment in order to minimize unpleasant odours as well as noise-abatement measures. All ­Nordzucker plants are audited regularly in accordance with applicable national and international legislation and standards to verify the results of these activities. This includes certification in line with the DIN EN ISO 14001 environmental management system and the EU Environmental Audit regulation (EC) 1221/2009 (EMAS III). ­Nordzucker not only submits to the statutory inspections, but also carries out additional voluntary audits.

An active dialogue with local residents is a matter of course for ­Nordzucker. Direct contact with neighbours enables plant managers to improve communication of how residents are affected and to explain processes at the plant.

Product safety As a food producer, N ­ ordzucker is responsible for the quality and safety of its products. The company works consistently to keep improving its already very high safety standards by means of continuous improvements to production processes, targeted investments and strict internal guidelines. Regular inspections and product safety certifications are carried out to identify risks at an early stage. All sites comply with DIN EN ISO 9001 and the product safety standards DIN EN ISO 22000 in conjunction with PAS 220 (FSSC 22000).

Due to differences in local rules, some sites are also certified in accordance with the following standards: occupational health and safety management system OHSAS 18001, energy man­agement system DIN EN ISO 50001, German biofuels sustainability by-law (Biokraft-NachV – the trans­position of Directive 2009/28/EC to promote the use of energy from renewable sources), IFS standards (International Food Standard for food retailing) and the GMP B2 standard for quality control in raw materials for animal feed. Organic and fair trade products are grown and inspected in line with the applicable legislation and standards.

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N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Management report

IT risks The increasing digitalization of business processes and the greater exchange of electronic information with customers, suppliers and beet farmers requires comprehensive risk management in order to ensure the adequate availability of all systems. Residual risk is covered as far as possible by active monitoring and by making continuous adjustments to our IT protection (e.g. firewalls and anti-malware systems).

The control systems and risk management systems installed also monitor residual systemic risks on a permanent basis.

Company staff and external specialists also check the existing IT environment continuously for vulnerabilities, in order to take the necessary steps to eliminate them. When selecting IT service providers, ­Nordzucker attaches great importance to verifiable security criteria and service agreements. This strategy puts N ­ ordzucker in a strong position to deal with the changing IT market and the associated risks.

Financial risks Financial risks relate to unrecoverable receivables, currency, raw materials and interest rate risks and liquidity risk. Risk exposure may also arise from the investment strategy and the availability of loan finance.

Default on receivables Receivables from customers or other parties may become unrecoverable. This risk rises at times of economic crisis or when extreme swings in the price of raw materials put pressure on customers.

To address these risks, ­Nordzucker establishes a customer’s credit standing before signing a contract and generally takes out trade insurance. The sales team maintains close contact with the customer and defaults are limited by active receiv­ ables management.

Currency, raw materials and interest rate risks The increasing volatility of interest rates and exchange rates and fluctuations in the price of raw materials give rise to operating risks, which are pooled by the Group treasury department.

To limit these risks, they are analyzed thoroughly before contracts are signed. Standard financial instruments available from banks and exchanges are used if ­Nordzucker has to assume risks. Financial derivatives such as forward contracts, swaps and futures are used to hedge the Group’s open risk positions.

This exposes the N ­ ordzucker Group to a normal measure of counterparty risk, in the sense that a partner to a contract may not perform their obligations. To minimize this counterparty risk, financial derivatives are either transacted directly via the stock exchange and/or only with first-class international financial institutions, whose economic performance is monitored regularly, partly by analyzing the financial ratings issued by international rating agencies. Dependence on individual institutions is also limited by spreading transactions over various counterparties.

All the financial derivatives used serve solely to hedge operating sales and purchase transactions and to hedge exchange rates for financial transactions.

The margins required for exchange-traded derivatives are also held exclusively on separate margin accounts with first-class international financial institutions.

As of 29 February 2016, the ­Nordzucker Group had exchange rate derivatives with a notional net volume of EUR 135.7 million (as of 28 February 2015: EUR 149.4 million). At the end of the financial year, derivative transactions with a notional net volume of EUR 20.0 million (as of 28 February 2015: EUR 16.1 million) were open to hedge against price movements for raw materials, and derivatives with a notional net volume of EUR 0 (as of 28 February 2015: EUR 2.2 million) were open to hedge the price of CO2 certificates.

These existing hedges generally run for less than one year and match the maturity profile of the hedged transactions.

The new EU regulation EMIR introduced standards for reporting obligations for trading in derivatives. ­Nordzucker implemented these as of the statutory effective date on 14 February 2014. The statutory reporting obligations have been met in full in the 2015/2016 financial year. Furthermore, the related audit required by Sec. 20 paragraph 1 German Securities Trading Act (WpHG) was conducted for the first time in 2015/2016 without any objections.

Liquidity risk The seasonality of the Group’s business means that its capital requirements vary widely over the course of a financial year.

The quality of the harvest and developments in market prices also have a considerable effect on the company’s funding requirements. If the company cannot meet this funding requirement from free cash flow or existing credit lines, a situation may arise in which its continued existence is at risk.

This is why the finance function regularly draws up liquidity forecasts for the Group, on the basis of which the financing strategies are then prepared and implemented.

Management report : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

Availability of funding The financial crisis in the EU resulted in much tighter regulation of banks, which may make it far more difficult for the company to obtain credit in future. New financial crises could also occur that would make financing much more expensive.

To reduce these risks, ­Nordzucker took out a new syndicated loan in March 2014 with a smaller group of banks and on better terms. This loan had a minimum term of five years, and in March 2016 it was extended by two years to make seven-year term in total. It therefore extends well beyond the end of the sugar market regime. All the syndicate banks have very good credit ratings and are very dependable. In the opinion of the company management, the medium-term syndicated loan to finance its operating business, together with the ABS programme and available liquidity, covers the company’s capital needs. From a current perspective, its cash reserves and unused lines of credit enable N ­ ordzucker to meet its payment obligations at all times. Based on current assessments, sufficient funds are also available to ensure the financing of solid growth.

The availability of the loan nonetheless depends on the meeting of various conditions; in particular, ­Nordzucker has to comply with a number of financial covenants. On the basis of existing corporate planning for the Group, the company assumes that the terms of the loan agreement will be met in subsequent years as well. Further steps have also been taken to support compliance with these covenants in future.

The guarantees needed for current operations can also be provided at any time as needed by means of the syndicated loan and bilateral lines of credit. The Group is not directly dependent on individual lenders.

Investment policy Risky financial investments or the default of a bank may result in the loss of financial assets required to secure the company’s liquidity. ­Nordzucker has a conservative investment policy.

The Group’s free liquidity is only invested in money-market products with first-class European financial institutions.

Investment amounts are limited to ensure that the deposits are covered by the applicable deposit insurance mechanisms.

Potential default risks are also addressed by spreading the investment across various counterparties.

Even with the amount of cash held, this investment policy keeps the risk of negative interest rates on amounts invested with banks within reasonable limits. However, the ­Nordzucker Group monitors the markets very closely for any changes

resulting from the policy of the European Central Bank, in order to actively respond to this risk by altering its investment strategy at short notice if necessary.

Overview of all opportunities and risks ­ ordzucker currently operates in a fast-moving environment.

N The expiry of the sugar market regime in 2017, the low world market prices that have prevailed for some time and intense competition pose considerable challenges for ­Nordzucker, as for all other European sugar producers. The main consequence of these risks was a sharp fall in prices on European sugar markets, which resulted in lower revenues and earnings.

Prices in Europe have fallen to levels never seen before.

After overcoming this phase of change and upheaval, which may well take some time, opportunities will again play a larger role for ­Nordzucker. Sugar is a product with high global demand. Consumption of sugar will go up as the world’s population increases and becomes more prosperous. Future market consolidation in Europe offers many opportunities for the company. Growth outside Europe should also offer the company attractive business opportunities in the years ahead.

The overall assessment of current opportunities and risks suggests that there are no risks that could jeopardize the company’s continued existence. Existential risks in the future have also not been identified at the present time.

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E V E N T S A F T E R T H E B A L A N C E S H E E T DAT E

F O R EC A S T

In February 2016, ­Nordzucker applied for a two-year extension of the syndicated loan until 9 March 2021 on the basis of the agreed renewal option. N ­ ordzucker AG took this opportunity to reorganize its banking consortium. Two banks have already left the syndicate as a result, and one other will only remain for the original term of the syndicated loan. Until 2019, the Group can therefore draw on a syndicated loan of EUR 344.5 million (reporting period: EUR 400.0 million) and from 2019 until March 2021, on a loan of EUR 312.6 million. The ABS programme that was launched last year with a volume of up to EUR 100.0 million, available liquidity and the loan extension until well after the end of the sugar market regime ensure that N ­ ordzucker still has a very solid financial structure.

As expected, the 2015/2016 financial year was challenging.

Contrary to last year’s forecast, the company was nonetheless able to close the year with a slight profit. Sales prices stabilized at a low level over the course of the year, and once the relatively expensive sugar from the 2014/2015 campaign had been sold, the production costs for sugar fell slightly over the year. Together with the savings from the FORCE efficiency programme that was launched in early 2015, this enabled the company to improve its earnings slightly from quarter to quarter – although sugar prices overall remained low. This shows that ­Nordzucker can operate successfully even in a difficult market environment.

Despite this somewhat more positive performance, the company – as was forecast in the previous year – missed its financial targets, including an EBITDA margin of 15.0 per cent and a return on sales of 5.0 per cent, by a considerable amount. Only the target of 30.0 per cent for the equity ratio was comfortably exceeded.

The capital structure remains very strong, however. Cash and cash equivalents went up thanks to the strong reduction in stocks following the short campaign and to the ABS programme to sell receivables that was used for the first time in the financial 2015/2016 year.

The outlook for the 2016/2017 financial year is more positive.

Global agricultural markets are certainly much gloomier, but in this difficult environment, the sugar market has decoupled itself from other agricultural commodities. While prices on the Chicago Board of Trade for wheat and maize fell by some 9 per cent and 8 per cent respectively between March 2015 and February 2016, sugar prices (New York Sugar No. 11) rose by around 7 per cent in the same period. In the 2014/2015 sugar marketing year, global market prices for sugar were still under considerable pressure, especially due to high global stocks and to the weak Brazilian real. Prices have recovered significantly in the current 2015/2016 sugar marketing year, however, primarily due to the expectation that global demand will once again exceed production. Stock levels, which are still high, put a lid on these price developments, however.

Management report : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

In Europe, the sugar industry withdrew large areas of land in the 2015/2016 campaign, which meant that stocks returned to much more normal levels. Compared with prior years, imports are also expected to be lower in the current sugar marketing year. Both factors support a slight price recovery in Europe, but still at a very low level. Steps taken by the European Commission in the course of 2016 to convert nonquota sugar or duty-reduced imports could still disturb this fragile equilibrium, however. After significant cuts in the previous year, the area under cultivation is likely to go up again in the 2016/2017 campaign. All producers are still exposed to intense competition for market share in order to secure the best possible position for themselves when the sugar market regime expires in 2017. Despite the slight recovery on the European sugar market, the environment is not expected to be easy in 2016/2017, and revenues are predicted to be roughly in line with those of 2015/2016. Low energy prices and further savings from the FORCE programme should nonetheless make it possible to achieve significantly higher earnings than in the reporting year.

In the medium term, the European sugar market should develop more positively again, however. The high economic potential of sugar beet enables European sugar producers to supply their customers on competitive terms and, after a transitional period, the market will consolidate further. ­Nordzucker is a strong provider in Europe, who can make use of these opportunities and is preparing to do so. The company is sufficiently well set up to play an active role in the market consolidation and to further expand its position in Europe. Its capital structure is so solid that the company can also strengthen its core business further by means of investments. Growth opportunities outside of Europe can also be considered. N ­ ordzucker has successfully dealt with all of the changes in Europe to date, and has emerged from them even stronger. Even in a world without sugar quotas, the company will continue on this successful path.

Braunschweig, Germany, 22 April 2016 The Executive Board

In the coming year, the performance indicators used to date (EBITDA margin, return on sales and equity ratio) are to be replaced by the metric ‘shareholders’ cost of capital’.

This indicator reflects the fact that the shareholders expect a ­market rate of return on their invested capital.

Forecasts for the following 2017/2018 financial year are virtually impossible. It covers the last seven months of the old quota system and the first five months without quotas. Forecasts are very difficult to make given the considerable changes to the European sugar market, the lengths to which many producers are expected to go to increase market share and the high volatility of global sugar markets. Massive upheaval may ensue, however, particularly in the transition period, which could put considerable pressure on ­Nordzucker’s earnings.

Hartwig Fuchs

Axel Aumüller

Dr Lars Gorissen

Dr Michael Noth

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足N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Consolidated financial statements

Photo: Mariann Rasmussen

Consolidated financial statements : ­N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

59

CONSOLIDATED FINANCIAL S TATEMENTS

60 � Consolidated income statement

65 � General remarks

60 � Consolidated statement

79 � Notes to the consolidated

of comprehensive income 61 � Consolidated cash flow statement 62 � Consolidated balance sheet 64 � Consolidated statement of changes in shareholders’ equity 65 � Notes to the consolidated financial statements

­income statement 84 � Notes to the consolidated ­balance sheet 86 � Consolidated assets schedule for the financial year 2015/2016 86 � Consolidated assets schedule for the previous year (2014/2015)

93 � Notes to the consolidated cash flow statement 94 � Other disclosures 108 � List of investments 109 � Audit opinion

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­N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Consolidated financial statements

CONSOLIDAT ED INCO M E S TAT E M E N T ­Nordzucker AG, Braunschweig, Germany, for the period from 1 March 2015 to 29 February 2016

in EUR thousands

Further details in Note

1/3/2015 – 29/2/2016

1/3/2014 – 28/2/2015

Revenues

8

1,607,373

1,866,277

Production costs

9

– 1,365,153

– 1,552,654

242,220

313,623

Sales costs

10

– 153,904

– 169,111

Administrative expenses

11

– 79,330

– 84,032

Other income

12

42,441

62,031

Other expenses

13

– 35,205

– 96,509

Gross profit

Operating result (EBIT)

16,222

26,002

Financial income

14

13,579

7,168

Financial expenses

15

– 7,563

– 10,266

Result from companies accounted for using the equity method

16

– 85

– 470

22,153

22,434

Earnings before taxes Income taxes Consolidated net income of which attributable to non-controlling interests

17

– 7,262

– 2,447

14,891

19,987

– 675

– 725

15,566

20,712

1/3/2015 – 29/2/2016

1/3/2014 – 28/2/2015

14,891

19,987

Remeasurement of defined benefit plans

639

– 73,751

Deferred taxes on items of other comprehensive income not reclassified to the income statement

187

20,888

Other comprehensive income from items not reclassified to the income statement

826

– 52,863

– 1,885

– 13,330

– 345

-400

of which attributable to shareholders of the parent company

C O N S O L I DAT E D S TAT E M E N T OF COMPREHENSIVE INCOME in EUR thousands Consolidated net income

Exchange differences on translating foreign operations Net result of cash flow hedges Deferred taxes on items of other comprehensive income reclassified to the income statement

100

1,257

Other comprehensive income from items reclassified to the income statement

– 2,130

– 12,473

Consolidated comprehensive income after taxes

13,587

– 45,349

of which attributable to non-controlling interests of which attributable to shareholders of the parent company

– 519

– 1,150

14,106

– 44,199

Consolidated financial statements : ­N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

C O N S O L I DAT E D C A S H F LO W S TAT E M E N T ­Nordzucker AG, Braunschweig, Germany, for the period from 1 March 2015 to 29 February 2016

1/3/2015 – 29/2/2016

1/3/2014 – 28/2/2015

Earnings before taxes

22,153

22,434

Interest and similar income/expenses

– 1,392

6,434

Depreciation, amortization and impairment/reversals of impairment of non-current assets

73,613

114,164

Change in provisions

– 5,095

– 7,773

Change in inventories

231,119

18,218

in EUR thousands

Change in trade receivables Change in trade payables Change in other operating assets/liabilities Gains/losses on disposal of non-current assets Other non-cash expenses/income Interest received in the financial year Interest paid in the financial year Result of companies accounted for using the equity method Taxes paid in the financial year Cash flow from operating activities Proceeds on disposal of property, plant and equipment Payments for investments in property, plant and equipment Proceeds on disposal of intangible assets Payments for investments in intangible assets Proceeds on disposal of financial assets Payments for investments in financial assets Cash flow for/from investing activities Inflows and outflows arising from changes in equity Payments to shareholders (dividends) Loan repayments Payments for finance leases

10,459

45,449

– 144,054

– 69,711

11,745

5,625

1,242

1,420

68

1,294

1,086

1,349

– 2,394

– 2,298

85

470

– 37

– 2,093

198,598

134,982

327

796

– 58,062

– 75,894

10

0

– 2,274

– 3,693

12

848

– 4,849

– 637

– 64,836

– 78,580

0

– 5

– 6,761

– 69,362

– 1

– 1

– 141

– 267

Cash flow from financing activities

– 6,903

– 69,635

Changes in cash and cash equivalents

126,859

– 13,233

44,989

58,339

– 67

– 117

171,781

44,989

Cash and cash equivalents at the beginning of the period Effect of foreign exchange rate changes Cash and cash equivalents at the end of the period

61

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­N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Consolidated financial statements

C O N S O L I DAT E D B A L A N C E S H E E T as of 29 February 2016, ­Nordzucker AG, Braunschweig, Germany

ASSET S in EUR thousands

Further details in Note

29/2/2016

28/2/2015

NON-CURRENT ASSETS Fixed assets Intangible assets

21

22,269

25,323

Property, plant and equipment

22

834,810

848,848

Investment property

24

2,929

3,521

Financial investments

25

Shares in companies accounted for using the equity method Other financial investments

25.1/25.2

7,307

2,568

25.3

23,906

23,931

31,213

26,499

891,221

904,191 0

Receivables and other assets Financial assets

29

0

Other assets

30

1,432

6

1,432

6

Deferred taxes

17

5,583

4,792

898,236

908,989

Raw materials, consumables and supplies

57,346

53,512

Work in progress

41,595

47,175

654,988

885,429

753,929

986,116 138,889

CURRENT ASSETS Inventories

26

Finished goods and merchandise Receivables and other assets Trade receivables

27

127,336

Receivables from related parties

28

914

67

Current income tax receivables

17

272

6,820

Financial assets

29

20,514

13,197

Other assets

30

38,156

42,742

187,192

201,715

Cash and cash equivalents Current assets Assets held for sale

31

171,781

44,989

1,112,902

1,232,820

1,516

1,703

1,114,418

1,234,523

2,012,654

2,143,512

Consolidated financial statements : ­N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

EQUIT Y AND LIABILITIES in EUR thousands Shareholders’ equity

Further details in Note

29/2/2016

28/2/2015

32

Subscribed capital

32.1

123,651

123,651

Capital reserves

32.2

127,035

127,035

Retained earnings

32.3

1,046,339

1,035,604

Other comprehensive income

32.4

– 57,844

– 56,383

1,239,181

1,229,907

Equity attributable to shareholders of the parent company Non-controlling interests

32.5

39,186

41,636

1,278,367

1,271,543

Non-current provisions and liabilities Provisions for pensions and similar obligations

33

221,834

219,334

Other provisions

34

50,874

33,603

Financial liabilities

35

7,147

7,407

Liabilities towards related parties

37

5,500

5,500

Other financial liabilities

38

18

18

Other liabilities

39

8,446

9,220

Deferred taxes

17

83,066

83,955

376,885

359,037

Current provisions and liabilities Provisions for pensions and similar obligations

33

11,521

11,308

Other provisions

34

45,100

66,845

Financial liabilities

35

261

248

Current income tax liabilities

17

18,233

16,269

Trade payables

36

183,202

327,348

Liabilities towards related parties

37

32,384

39,777

Other financial liabilities

38

19,230

6,035

Other liabilities

39

47,471

45,102

357,402

512,932

2,012,654

2,143,512

63

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­N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Consolidated financial statements

C O N S O L I DAT E D S TAT E M E N T OF CHANGES IN SHAREHOLDERS’ EQUIT Y ­Nordzucker AG, Braunschweig, Germany

in EUR thousands

Subscribed capital

Capital reserves

As of 1/3/2014

123,651

127,035

Net income

Equity attributable to shareholders of the parent company

Noncontrolling interests

Total equity

1,336,223

49,595

1,385,818

20,712

– 725

19,987

– 64,911

– 64,911

– 425

– 65,336

– 64,911

Other Retained comprehensive income earnings 1,077,009

8,528

20,712

Other comprehensive income Consolidated comprehensive income

20,712

Dividend payment Other

– 44,199

– 1,150

– 45,349

– 62,792

– 62,792

– 6,570

– 69,362

675

675

– 239

436

As of 28/2/2015

123,651

127,035

1,035,604

– 56,383

1,229,907

41,636

1,271,543

As of 1/3/2015

123,651

127,035

1,035,604

– 56,383

1,229,907

41,636

1,271,543

15,566

– 675

14,891

– 1,460

– 1,460

156

– 1,304

– 1,460

Net income

15,566

Other comprehensive income Consolidated comprehensive income

15,566

14,106

– 519

13,587

Dividend payment

– 4,830

– 4,830

– 1,931

– 6,761

– 1

– 1

0

– 1

1,239,181

39,186

1,278,367

Other As of 29/2/2016

123,651

127,035

1,046,339

– 57,844

Notes : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

NOTES TO THE ­C ONSOLIDATED FINANCIAL S TATEMENTS GENER AL REMARKS 2 . CO N S O L I DAT I O N A N D ACQ U I S I T I O N S 1. ACCO U N T I N G P R I N C I P L E S The consolidated financial statements as of 29 February 2016 for ­­Nordzucker AG (Küchenstrasse 9, 38100 Braunschweig, Germany) have been prepared in accordance with Sec. 315a HGB (German Commercial Code) in accordance with the International Financial Reporting Standards (IFRS) adopted and published by the International Accounting Standards Board (IASB) or the IFRS Interpretations Committee (IFRS IC) as applicable in the European Union (EU-IFRS) and with supplementary provisions of German commercial law. The financial statements comply fully with EU-IFRS and give a true and fair view of the net assets, financial and earnings position of ­­Nordzucker AG and its consolidated subsidiaries, joint ventures and associated companies (hereinafter known as ‘­­Nordzucker Group’ or ‘Group’).

As the parent company of the Group, ­­Nordzucker AG is entered in the commercial register at Braunschweig Local Court (HRB 2936).

The consolidated financial statements of Nordzucker AG, ­­ audited by Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Stuttgart, and issued with an unqualified opinion, are published in the German Federal Gazette. The annual report can be viewed on the ­­Nordzucker AG website (www.nordzucker.de).

The reporting currency is the Euro, with amounts reported in thousands of Euros (EUR ‘000).

The consolidated financial statements will be approved by the Executive Board of Nordzucker AG ­­ on 23 May 2016 for presentation to the Supervisory Board.

2.1. Principles of consolidation Subsidiaries In addition to Nordzucker ­­ AG as the parent company, the ­­ Nordzucker consolidated financial statements also include the domestic and foreign companies controlled by ­­Nordzucker AG within the meaning of IFRS 10 (subsidiaries).

The first-time application of IFRS 10 had no effect on the group of consolidated companies (see Note 2.3).

Subsidiaries are fully consolidated from the acquisition date, i.e. the date on which the Group obtains control. Consoli­ dation ends once the parent company no longer exercises control. The financial statements of the subsidiaries are prepared for the same reporting period as the financial statements for the parent company using uniform accounting methods. Intra-Group transactions between companies in the Group are eliminated in full.

Joint ventures Joint ventures are accounted for in the consolidated financial statements using the equity method. Nordzucker AG ­­ has rights to the net assets of the joint ventures and manages them with another party (joint control). In applying the equity method, the IFRS financial statements of these companies are used. Losses from joint ventures which exceed the carrying amount or other non-current receivables from financing these companies are not recognized unless there is an obligation to provide further capital.

The joint ventures accounted for using the equity method were individually and collectively immaterial for the presen­ tation of the net assets, financial position and earnings of the ­­Nordzucker Group in the reporting period and in the same period of the previous year.

65

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N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Notes

Associates Associates are also accounted for in the consolidated financial statements using the equity method. ­­Nordzucker AG has a significant influence with associates, i.e. it can contribute to shaping the company’s financial and operating policies, but does not have control or joint control of decision-making processes.

By contract dated 16 December 2014, ­­ Nordzucker AG acquired 25 per cent of the shares in August Töpfer Zuckerhandelsgesellschaft mbH & Co. KG, Hamburg. August Töpfer Zuckerhandelsgesellschaft mbH & Co. KG is a subsidiary of August Töpfer GmbH & Co. KG, Hamburg. The German competition authority approved the investment on 8 April 2015. August Töpfer Zuckerhandelsgesellschaft mbH & Co. KG, Hamburg, was included in the consolidated financial statements of the ­­Nordzucker Group as an associate for the first time in the 2015/2016 financial year. The company was immaterial for the presentation of the net assets, financial position and earnings of the ­­Nordzucker Group.

The number of fully consolidated subsidiaries increased in the reporting period due to the establishment of Nordzucker ­­ Services GmbH & Co. KG, Braunschweig.

In the reporting period, one associate was added to the number of companies included in the consolidated financial statements and accounted for using the equity method following the acquisition of 25 per cent of the shares in August Töpfer Zuckerhandelsgesellschaft mbH & Co. KG, Hamburg.

The list of shareholdings can be found in the ­­Nordzucker AG annual report and is published in the German Federal Gazette.

The reporting date for all fully consolidated subsidiaries included in the consolidated financial statements and for NP Sweet A/S, a joint venture accounted for using the equity method, is 29 February 2016. All the other companies accounted for using the equity method and included in the consolidated financial statements have 31 December 2015 as their reporting date.

2.4. S ignificant subsidiaries

2.2. Business combinations and investments No acquisitions were made in the reporting period or comparative period.

The significant subsidiaries of the Nordzucker ­­ Group are listed in the table below:

For the accounting principles relating to acquisitions, please see Note 3.16.

S IG N IF IC AN T S UBS IDIARIES

2.3. Group of consolidated companies

Nordic Sugar A/S, Copenhagen, Denmark

100 %

Nordic Sugar AB, Malmö, Sweden

100 %

NORDZUCKER GmbH & Co. KG, Braunschweig, Germany

100 %

­­Nordzucker Ireland Limited, Dublin, Ireland

100 %

Group stake

The consolidated companies in the ­­Nordzucker Group are as follows:

­­ Nordzucker Services GmbH & Co. KG, Braunschweig, Germany

GRO UP O F CO NSOL I DAT E D CO M PA N I E S

29/2/2016

28/2/2015

99.870 %

Považský Cukor a.s., Trencianska Teplá, Slovakia

96.798 %

Sucros Oy, Säkylä, Finland Fully consolidated subsidiaries Domestic Foreign

100 %

­­Nordzucker Polska S.A., Opalenica, Poland

Suomen Sokeri Oy, Kantvik, Finland

80 % 80 %

4

3

AB Nordic Sugar Kėdainiai, Kėdainiai, Lithuania

70.6 %

13

13

Norddeutsche Flüssigzucker GmbH & Co. KG, Braunschweig, Germany

70 %

Companies accounted for using the equity method Domestic

3

2

Foreign

2

2

Notes : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

The following trading companies structured as limited partnerships (GmbH & Co. KG)

3. E X P L A N AT I O N O F ACCO U N T I N G P O L I C I E S

> NORDZUCKER GmbH & Co. KG, Braunschweig, Germany

3.1. General principles

> Norddeutsche FlĂźssigzucker GmbH & Co. KG,

The valuation of the items in the consolidated financial statements is primarily at amortized cost. Derivative financial instruments and coverage capital for pension obligations in the form of plan assets, in particular, are recognized at fair value.

Braunschweig, Germany > Nordzucker Services GmbH & Co. KG, Braunschweig, Germany are exempt from the obligation to prepare financial statements in accordance with the regulations applicable to companies with limited liability pursuant to Sec. 264b German Commercial Code (HGB).

Individual line items of the income statement and the balance sheet have been aggregated to improve readability. These items are listed in the notes.

2.5. C onversion of financial statements in foreign currencies

The income statement has been prepared using the costof-sales method. As such, the revenues recognized in the reporting period are compared with the costs incurred to achieve these revenues, categorized by the functional areas of production, sales and administration.

Assets and liabilities of subsidiaries whose functional currency is not the Euro are converted at the exchange rate applicable on the balance sheet date. The functional currency is the currency of the primary economic environment in which the subsidiary operates. Items in the income statement are converted at the weighted average rate for the relevant reporting period. Equity components of subsidiaries are converted at the historical rate for the date first recognized. Exchange differences arising from the conversion are recognized without effect on profit or loss in other comprehensive income (i.e. in the statement of comprehensive income and not in the income statement).

The rates for the conversion of key financial statements in foreign currencies into Euros have changed as follows:

Average rate

Spot rate

2015/16

2014/15

29/2/2016

28/2/2015

4.21193

4.19256

4.35430

4.15240

310.10133

309.62953

311.26000

303.03000

Danish Krone (DKK)

7.46144

7.45212

7.46020

7.46600

Swedish Krone (SEK)

9.33674

9.19641

9.32190

9.36930

Polish Zloty (PLN) Hungarian Forint (HUF)

3.2. Recognition of income and expense Revenues are recognized in accordance with IAS 18 when the goods or services are delivered if the amount of revenue can be estimated reliably and the flow of economic benefit is probable. Revenues are reduced by sales discounts.

Operating expenses are recognized when the service is used or as of the date they arise.

Interest is recognized as an expense or as income in the period in which it arises. Interest expense arising in connection with the purchase or production of certain assets is only capitalized if they are qualifying assets in accordance with IASÂ 23.

E XC HAN GE R AT E S O F F O RE I G N C U RRE N C I E S

for EUR 1.00

In the balance sheet, assets and liabilities are categorized as non-current (with maturities of more than one year) or current.

Dividends are recognized in profit or loss when the legal entitlement is vested.

67

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N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Notes

3.3. Intangible assets including goodwill This item primarily refers to intangible assets acquired, internally generated intangible assets and goodwill.

Intangible assets acquired (purchased rights and licences) are valued initially at cost (purchase price, directly attributable costs). Assets related to acquisitions (see also Note 3.16), such as contractual customer relationships, trademark rights and no-competition clauses, are recognized as separately acquired intangible assets, provided that the criteria of IFRS 3 and IAS 38 are fulfilled, and valued for the first time at fair value.

Internally generated intangible assets (such as internally generated software) are recognized provided that they fulfil the capitalization criteria of IAS 38 (in particular with regard to demonstration of technical feasibility, of the intention and ability to use the asset, as well as of its reliable valuation).

Production costs include the costs directly attributable to the development phase, as well as borrowing costs insofar as they can be capitalized under IAS 23. Research costs are recognized as an expense.

Separately acquired and internally generated intangible assets with limited useful lives are subject to scheduled amortization after initial recognition. This is done on a straight-line basis under the assumption of the following useful lives:

INTAN GIBL E ASSE T S

Useful life in years Production quotas acquired against payment ERP licences Other software

11 20 3 – 15

Useful lives are reviewed regularly to ensure they are appropriate. If necessary they are adjusted accordingly. If there is reason for an impairment on intangible assets with limited useful lives in accordance with IAS 36 and the recoverable amount is less than the historical cost, impairment losses are recognized on these items (see also Note 3.6). If the reasons for the impairment losses are no longer valid, the relevant reversals of impairments are to be made.

Goodwill arises in conjunction with an acquisition (see also Note 3.16) if the total consideration transferred to the seller (purchase price and any future contingent considerations) exceeds the net amount of the identifiable assets acquired and the liabilities assumed. The positive difference is capitalized under IFRS 3.

Separately acquired and internally generated intangible assets with indefinite useful lives, as well as goodwill, are not subject to scheduled amortization, but must be tested for impairment at least once a year in accordance with IAS 36 (see also Note 3.6). The impairment test for goodwill takes place at the level of the cash-generating unit to which the item was attributed upon initial recognition. Goodwill is assigned to the cash-­ generating unit that stands to benefit from the synergies of the business combination. According to IAS 36, a cash-­ generating unit is the smallest identifiable group of assets with cash inflow that is largely independent of cash inflow from other assets. Within the Nordzucker ­­ Group, the lowest possible level is deemed the one within the entity at which goodwill is monitored for internal management purposes. An impairment loss is recognized on goodwill when the recoverable amount attributed to the cash-generating unit for this item is less than the carrying amount of this cash-generating unit; goodwill must then be written down by the amount of this difference. The basis for calculating the recoverable amount is the value in use of the cash-generating unit. The cash-generating unit determines a present-value model taking into account cash flows that are based on internal targets. Reversals of the impairment or increases in the carrying amount of goodwill cannot be carried out later.

Gains or losses resulting from the disposal or impairment of intangible assets are recorded on the income statement under ‘Other income’ or ‘Other expenses’.

Notes : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

3.4. Property, plant and equipment In accordance with IAS 16, property, plant and equipment is initially recognized at historical cost and subsequently depreciated on a straight-line basis over their expected useful lives. Costs include the purchase price, all directly attributable costs, estimated costs for future decommissioning and restoration obligations, as well as borrowing costs insofar as they can be capitalized under IAS 23.

PRO PE R T Y, PL A N T A N D E QU I P M E N T

Useful life in years Technical plant and machinery Railway tracks Vehicles Trailers and rolling stock Other operating and office equipment

Gains or losses resulting from the disposal or impairment of items of property, plant and equipment are recorded on the income statement under ‘Other income’ or ‘Other expenses’.

3.5. Investment property

The following useful lives are assumed for depreciation:

Buildings

to the lessee, the scheduled depreciation takes place either over the term of the leasing arrangement or the useful life – whichever is shorter. If this is not the case, the leased item must be depreciated over its useful life.

20 – 60 4 – 60 70 4 – 15 25 3 – 25

Useful lives are reviewed regularly to ensure they are appropriate. If necessary they are adjusted accordingly. Depreciation starts from the time at which the asset in question becomes ready for use. Production-related technical plant and machinery only used during the campaign are depreciated for the full year. If there is reason for an impairment in accordance with IAS 36 and the recoverable amount is less than the historical cost, impairment losses are recognized on these items (see also Note 3.6). If the reasons for the impairment losses are no longer valid, the relevant reversals of impairments are to be made.

If the major opportunities and risks associated with ownership of rented or leased items of property, plant and equipment are borne by the tenant or lessee, then the items are to be capitalized as an asset under IAS 17 on the lessee’s balance sheet. The asset is initially valued at the present value of the minimum leasing payments, or at fair value for the leased item – whichever is lower. In exchange, a liability is to be recognized at an appropriate amount for the finance lease. After initial recognition, the leased item is classed as an ordinary or extraordinary write-down. If it is not sufficiently clear at the start of the lease whether or not ownership will be transferred

Property intended to be let to third parties is initially recognized at historical cost under IAS 40. For subsequent valuations, the ­­Nordzucker Group consistently exercises the option of valuing investment property at historical cost, minus scheduled and unscheduled depreciation. Depreciation takes place on a straight-line basis over the useful life of 20 to 60 years. If there is reason for an impairment in accordance with IAS 36 and the recoverable amount is less than the historical cost, an impairment is recognized (see also Note 3.6), which is reversed if the reason for the impairment no longer exists in subsequent periods.

3.6. I mpairment of intangible assets (including goodwill), property, plant and equipment as well as investment property Under IAS 36, impairment losses are calculated by com­paring the carrying amount with the recoverable amount. This impairment test is applied at the level of individual assets, provided that it is possible to estimate the recoverable amount for the individual asset. If this is not the case, the impairment test must be applied at the level of the cash-generating unit.

The cash-generating unit is the smallest possible group of assets that generate largely independent cash inflows.

On each reporting date, a review is conducted to assess whether any indications for the impairment of assets exist. If such an indication exists, the recoverable amount of the asset or cash-generating unit must be determined and compared with the carrying amount. Impairment testing is carried out once a year for goodwill, other intangible assets with indefinite useful lives and for intangible assets not yet available for use – regardless of whether or not indications for impairment exist.

69

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N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Notes

The recoverable amount of an asset or cash-generating unit equates to the higher of fair value less costs of disposal and value in use. For cash-generating units, the recoverable amount is generally calculated using the discounted cash flow method, taking into account cash flows based on internal targets. The cash flows are discounted at a rate which reflects current market assessments of the time value of money and the specific risks of the cash-generating unit.

An impairment is applied if the recoverable amount of the asset or cash-generating unit is lower than the corresponding carrying amount. For cash-generating units, any goodwill must first be reduced or eliminated. If the carrying amount is insufficient, other assets belonging to the cash-generating unit must be reduced proportionally.

With the exception of goodwill, a review must be conducted at the end of each reporting period to assess whether there are any reasons for whether a previously recognized impairment no longer exists or has been reduced. If this is the case, the carrying amount of the asset or cash-generating unit must be increased to its recoverable amount. As such, assets may not be attributed in excess of the amortized carrying amount as would have been determined in the absence of any prior impairment.

3.7. Investment subsidies Public subsidies representing grants for assets under IAS 20 (i.e. being investment subsidies) are only recorded if there is sufficient reason to believe that a company within the ­­Nordzucker Group is likely to fulfil the associated conditions and the grant will be received. Subsidies are not subtracted from the corresponding asset but are considered as deferred income under ‘Other liabilities’. The deferred income is subsequently released to profit or loss (i.e. via the income statement) over the useful life or depreciation period of the corresponding item of property, plant and equipment.

3.8. Financial instruments Financial instruments are defined in IAS 32; the relevant accounting and disclosure principles can be found in IAS 39 and IFRS 7. The term financial instruments covers both financial assets and financial liabilities. Financial assets include cash and cash equivalents, contractual rights to receive cash or other financial assets such as trade receivables, derivative financial instruments with positive fair value and equity instruments of another company. Financial liabilities include contractual obligations to deliver cash and cash equivalents or other financial assets. These include, for example, borrowing, current loans, trade payables and derivative financial instruments with negative fair value.

Only financial assets are included under ‘Other financial investments’, ‘Financial assets’, ‘Trade receivables’, ‘Receivables from related parties’ and ‘Cash and cash equivalents’.

The items ‘Financial liabilities’, ‘Trade payables’, ‘Liabilities towards related parties’ and ‘Other financial liabilities’ only comprise financial liabilities.

For the initial recognition, financial instruments must be assigned to measurement categories as listed in IAS 39. The subsequent valuation of the items is determined by the mea­ surement category. There are four measurement categories for financial assets (‘Financial assets at fair value through profit or loss’, ‘Financial investments held to maturity’, ‘Loans and receivables’, ‘Available-for-sale financial assets’). Financial liabilities may be assigned to two measurement categories (‘Financial liabilities at fair value through profit or loss’, ‘Financial liabilities measured at amortized cost’). In the reporting period and comparative period, no financial assets were assigned to the measurement category ‘Financial investments held to maturity’. In addition, there were no reclassifications from one measurement category to another.

Financial assets and liabilities must be recognized as soon as a company becomes a party to the contractual provisions of the financial instrument. Within the Nordzucker ­­ Group, regular purchases and sales are recognized on the settlement date (the day on which the asset is supplied to or by the company). Initial recognition is at fair value. The principles of IFRS 13 are applied to determine fair value. For items not measured at fair value through profit or loss, transaction costs must be taken into account in the initial carrying amount.

Notes : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

The Nordzucker ­­ Group has not used the voluntary option of designating financial assets or financial liabilities upon initial recognition as at fair value through profit or loss (fair-value option).

After initial recognition, financial instruments in the category ‘Financial assets/liabilities at fair value through profit or loss’ are to be recognized at fair value. This includes derivative financial instruments that are not part of an effective hedging relationship as set out in IAS 39 (see also Note 3.14).

Changes in value are recognized through profit or loss (i.e. in the income statement). The subsequent valuation of items in the measurement category ‘Available-for-sale financial assets’ is also at fair value. However, having considered the effects of tax, changes in fair value are, recognized without effect on profit or loss in other comprehensive income (i.e. in the statement of comprehensive income and not in the income statement). If fair value for items in the measurement category ‘Available-for-sale financial assets’ cannot be reliably determined, the items are to be valued at cost.

For derivative financial instruments that are part of an effective hedging relationship as set out in IAS 39 (see also Note 3.14), no measurement category is assigned. The instruments are also recognized at fair value. However, value changes are also recognized in other comprehensive income (i.e. in the statement of comprehensive income) depending on the type of hedging relationship.

Following initial recognition at amortized cost, financial assets in the measurement category ‘Loans and receivables’ and financial liabilities in the measurement category ‘Financial liabilities measured at amortized cost’ are valued using the effective interest method.

Within the Nordzucker ­­ Group, the financial assets included under the item ‘Cash and cash equivalents’ are assigned to the measurement category ‘Loans and receivables’. This includes bank balances, cash in hand and current balances with banks which have an initial remaining term of up to three months. Amortized cost is frequently the same as the nominal value.

At the end of each reporting period, it must be identified whether an impairment of a financial asset or a group of assets exists according to IAS 39. There must be objective indications of a loss event (e.g. severe financial difficulties of the issuer or debtor, breach of contract, concessions made to debtors for economic or legal reasons in connection with the debtor’s financial difficulties, an increased probability of insolvency, a significant or prolonged decline in the fair value below its cost), and this must have a reliably estimated effect on expected future cash flows. For financial assets in the mea­ surement categories ‘Financial investments held to maturity’ and ‘Loans and receivables’, any impairment amount is calculated by comparing the carrying amount with the present value of the expected future cash flows (discounted using the effective interest rate). For items in the measurement cate­ gory ‘Available-for-sale financial assets’, a comparison must be made between acquisition cost and fair value.

3.9. Assets held for sale Under IFRS 5, items classed as ‘Assets held for sale’ include non-current assets and disposal groups classified as ‘held for sale’. This categorization applies if the relevant carrying amount will be recovered principally through a sales transaction rather than through continuing use. In addition, the items must be available for immediate sale in their present condition and the sale must be deemed highly probable, and expected to occur within one year.

Non-current assets are not subject to depreciation, provided that they are categorized as ‘held for sale’ or belong to a disposal group categorized as ‘held for sale’. Non-current assets or disposal groups that are categorized as ‘held for sale’ must be valued immediately after being categorized as such, as well as before subsequent ends of reporting periods, at either the carrying amount or fair value less costs to sell, whichever is lower.

If a non-current asset is no longer categorized as ‘held for sale’ or no longer belongs to a disposal group categorized as ‘held for sale’, and if it is again presented as a non-current item at the time of the decision not to sell, it is valued either at the recoverable amount or – if this is lower – at the carrying amount prior to categorization, adjusted for all depreciation or revaluations that would have been recorded in the absence of categorization.

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3.10. Inventories

3.11. Provisions for pensions

Under IAS 2, inventories are valued at the lower of cost and net realizable value. The historical cost of inventories includes all costs of acquisition and production, as well as any costs incurred in transferring inventories to their current location and in their current condition. Costs are determined using weighted averages. Costs include all direct costs attributable to producing the asset as well as indirect costs attributable to production. Borrowing costs are not included in costs as the Group’s products are not qualifying assets under IAS 23.

Under IAS 19, provisions must be made for pension commitments in the form of defined benefit plans where the company primarily bears the actuarial risk (that the benefits will result in higher costs than expected) and the investment risk (that the assets invested will not be sufficient to provide the benefits expected). Provisions are presented as a net liability, i.e. the capital accrued to finance the pension payments (coverage capital) is offset against the defined benefit obligation (reflecting the future pension payments to the employee) if the coverage capital shows the defining characteristics of plan assets.

The net realizable value is the estimated selling price in the ordinary course of business less estimated costs to completion and estimated costs to sell. The net realizable value of work in progress is inferred from the net realizable value of finished goods and services less the outstanding costs of completion.

Semi-finished goods from production processes are measured using their respective full cost approach. Indirect costs are allocated according to production volume and the amount of production work carried out in-house. If the recognized amounts for finished products and goods are higher than fair value as of the end of the reporting period, the inventories are written down to net realizable value. Sugar stocks from internal production presented under finished products are recognized at cost, unless they are recognized at lower net realizable value in view of sales opportunities. Costs include production costs, indirect costs attributable to the production department and straight-line depreciation for wear and tear. The production costs of quota sugar also include the factory portion of the production levy of EUR 6.00 per tonne.

An impairment loss for inventories to the net realizable value is reversed if the reasons for recognizing the loss no longer exist.

The valuation of the defined benefit obligation is made using actuarial methods (projected unit credit method). This method assumes that each period of service gives rise to an additional unit of benefit entitlement; as such, the defined benefit obligation increases successively until the employee retires. Future payouts are subject to a discount rate, which is calculated on each reporting date based on market returns on high-quality corporate bonds. The method takes into account both actuarial and demographic assumptions (such as expected mortality, fluctuations, early retirement, for example), as well as financial assumptions (such as discount rates and future salary trends, for example).

Cost components with a bearing on pension provisions include service cost, net interest (interest expense, interest income), actuarial gains or losses, return on plan assets. In the income statement, the service cost (i.e. the increase in the present value of a defined benefit obligation arising from a service provided during the reporting period) is recorded in the items ‘Production costs’, ‘Distribution costs’ and ‘Administrative expenses’, while the net interest is recorded under ‘Financial expenses’. Net interest is calculated by multi­ plying net debt with the discount rate of the defined benefit obligation. Actuarial gains and losses and the return on plan assets are recognized without effect on profit or loss in other comprehensive income (i.e. in the statement of comprehensive income and not in the income statement). Actuarial gains and losses are defined as changes in the present value of the defined benefit obligation as a result of experienced adjustments (effects of variations in past actuarial assumptions and actual developments) and effects of changes in actu­ arial assumptions. The return on plan assets is the variation between the actual return for the plan asset and the accrued interest based on the discount rate for the defined benefit obligation.

Notes : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

3.12. Other provisions The item ‘Other provisions’ includes personnel-related provisions for anniversaries, partial early retirement, early retirement and severance pay obligations, as well as obligations for profit-sharing, bonuses and other gratuities. Under IAS 19, these are recognized depending on the characteristics of the obligation – either according to the rules for short-term employee benefits, the rules for other (i.e. not considered as pension benefits) long-term employee benefits, or according to the rules for long-term employee benefits resulting from the termination of an employment relationship (termination benefits).

The ‘Other provisions’ item also includes recultivation obligations and other provisions (e.g. for legal disputes or for onerous contracts or imminent losses). Under IAS 37, these kinds of provisions are recognized if a present (legal or factual) obligation has arisen as a result of a past event, which will probably result in an outflow of resources and if the extent of the provisions can be reliably estimated. The valuation is based on the best-possible estimate of the expenses required to fulfil the obligation before the reporting date. Long-term provisions must be discounted with an interest rate commensurate to the risk.

Other provisions take into account all recognizable legal and factual obligations of the ­­Nordzucker Group towards third parties.

3.13. Deferred taxes Under IAS 12, deferred taxes are recognized for future tax assets and liabilities resulting from temporary differences between the value of assets and liabilities for tax purposes and their carrying amount in the IFRS financial statements, and for tax loss carry-forwards. Deferred taxes are measured on the basis of the fiscal legislation enacted at the end of each reporting period for the reporting periods in which the differences are expected to reverse or in which it is likely that tax loss carry-forwards will be used. Deferred tax assets for tax loss carry-forwards are only recognized if it is sufficiently likely that they will be realized in the near future. Deferred tax assets are only offset against deferred tax liabilities if specific conditions are fulfilled.

The offsetting entry of deferred taxes is made within the income statement under the item ‘Income taxes’ – unless the tax results from a transaction or event that is recognized directly in equity during the same period or another period either under other comprehensive income (i.e. in the statement of comprehensive income) or in any other place.

3.14. Derivative financial instruments and hedge accounting Due to the nature of its business, the Nordzucker ­­ Group is exposed to interest rate, exchange rate and other market risks. Derivative financial instruments are used as a means of managing these risks.

Accounting for derivative financial instruments is governed by the principles set out in IAS 39. Derivative financial instruments are either accounted for separately or they are part of an effective hedging relationship (‘hedge accounting’). Hedge accounting means addressing hedged items and hedging instruments that are documented as being linked from a financial point of view in such a way that the compensatory effects on the income statement resulting from changes in market prices occur in the same period. If a ­hedging relationship is designated, recognition of gains and losses from hedged items and hedging instruments is based on special hedge accounting rules. There is a hedge accounting option for every scenario. However, the application of hedge accounting rules is tied to certain conditions. For one thing, the hedging relationship must be documented. In addition, the hedge must be effective, i.e. the fair value or cash flow changes of hedged items and hedge transactions must be offset within a specific range.

The value measure for the initial and subsequent recognition of derivative financial instruments is fair value. The fair value of certain derivatives may be either positive or negative; depending on whether they are either financial assets or financial liabilities. Fair value must be determined in accor­ dance with the principles set out in IFRS 13. If no market prices for active markets are available, fair value is determined using the present value or option pricing models, whose significant input factors (e.g. market prices, interest rates) are derived from price quotations or other directly or indirectly observable input factors.

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Stand-alone derivative financial instruments, i.e. those that are not part of an effective hedging relationship according to IAS 39, are always assigned to the measurement categories ‘Financial assets/liabilities at fair value through profit or loss’.

Value changes are recognized in the income statement under either ‘Financial income’ or ‘Financial expenses’.

For derivative financial instruments in an effective hedging relationship, no measurement category is assigned. They are also recognized at fair value, although their recognition depends on the type of hedge (fair-value hedge, cash flow hedge) or on the characteristics of the hedge as either with an effect on profit and loss (i.e. in the income statement) or with no effect on profit or loss under other comprehensive income (i.e. in the statement of comprehensive income).

Within the Nordzucker ­­ Group, interest rate derivatives are always integrated into hedging relationships. Stand-alone derivatives are also used to hedge currency and market risks.

Subsequent recognition of foreign currency items depends on whether they are monetary or non-monetary items. ­Monetary items in a foreign currency are to be translated into the functional currency by each reporting date using the closing rate (i.e. the spot exchange rate at the end of the reporting period); exchange differences must generally be recognized through profit or loss (i.e. in the income statement). Non-monetary items – provided that they are recognized at historical cost – are to be translated into the functional currency using the exchange rate on the day of their initial recognition. Non-monetary items recognized at fair value must be translated using the exchange rate that was valid on the day of their recognition (i.e. generally using the exchange rate on the reporting date). Translation differences from non-monetary items should be treated like all other gains or losses, i.e. they are either recognized with an effect on profit or loss or with no effect on profit or loss under other comprehensive income (i.e. in the statement of compre­hensive income).

3.15. Transactions and items in foreign currencies Under IAS 21, a foreign currency transaction is a transaction that is denominated or requires settlement in a foreign currency, or which must be fulfilled in a foreign currency. A foreign currency is defined as any currency other than the functional currency of the company. Foreign currency transactions are business transactions for the acquisition or sale of goods or services in a foreign currency, borrowing activity or leases in a foreign currency, or acquisitions or sales of assets or debt in a foreign currency by any other means. Foreign currency items are balance sheet items that are received or borrowed in foreign currency (and which were related to foreign currency transactions before initial recognition).

Foreign currency transactions or foreign currency items are translated into the functional currency initially at the spot exchange rate valid on the day of the transaction.

3.16. Acquisitions Business combinations are presented using the purchase method in accordance with IFRS 3. The acquisition costs of a business combination are defined as the total consider­ ation paid, measured at fair value as of the acquisition date and the non-controlling interests in the acquired entity. For every business combination the acquirer measures the non-­ controlling interests in the acquired entity either at fair value or at their pro rata share of the identified net assets of the acquired entity. Costs incurred in the course of the business combination are recognized as expenses in profit and loss.

If the Group acquires an entity it determines the appropriate classification and designation of the financial assets and liabili­ ties assumed in accordance with the terms of the contract, economic circumstances and the conditions at the acquisition date. This also includes separating embedded derivative financial instruments from their host contract.

For business combinations in stages, the fair value of the equity interest held by the purchaser in the acquired entity is measured as of each acquisition date and the resulting gain or loss is recognized in the income statement.

Notes : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

The agreed contingent consideration is recognized at fair value as of the acquisition date. Subsequent changes in the fair value of a contingent consideration that constitutes an asset or a liability are generally recognized either in the income statement or in other comprehensive income in accordance with IAS 39. Contingent consideration that is classified as equity is not revalued and its subsequent settlement is accounted for within equity.

Goodwill is initially recognized at cost, which is defined as the excess of total consideration transferred and the amount of any non-controlling interest over the identifiable assets acquired and the liabilities assumed. If this consideration is below the fair value of the net assets of the company, the difference is recognized in the income statement.

After initial recognition, goodwill is not subject to scheduled amortization, but is tested at least once a year for impairment under IAS 36 (see also Notes 3.3 and 3.6).

4. D I S C R E T I O N A R Y D EC I S I O N S A N D E S T I M AT I O N U N C E R TA I N T Y The presentation of the net assets, financial and earnings position, as well as the accounting policies, are influenced by estimations and assumptions. Estimated values and actual amounts may vary – sometimes significantly.

In particular, key estimates and assumptions have been made in defining uniform periods of depreciation and amortization for the Group, the amount of write-downs on receivables, as well as determining the actuarial assumptions for measuring pension provisions. At the same time, it is necessary to make a large number of estimates and assumptions to account for provisions or disclose contingent liabilities – particularly with regard to related or potential legal disputes or other pending claims. Estimates, for example, must be made regarding the likelihood of a pending case being ruled in the claimant’s favour, and regarding any payment obligations arising as a recognition of the ruling. There is also estimation uncertainty in the recognition of provisions for onerous contracts or imminent losses with regard to whether a loss is likely, and whether it is possible to estimate this loss reliably. For deferred tax assets, the main estimates relate to the taxable profits that will be generated in future. Other significant estimates are made with regard to the issue of whether there are reasons for an impairment of assets or a cash-generating unit, as well as in the implementation of the impairment testing in accordance with IAS 36 with regard to determining the cash flows in the forecast period and the selection of a suitable capitalization rate. We refer to the corresponding notes to the consolidated balance sheet for the carrying amounts of balance sheet items affected by significant estimates.

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5. A CCO U N T I N G S TA N DA R DS TO B E A P P L I E D F O R T H E F I R S T T I M E The Nordzucker ­­ Group applied the following pronouncements or amendments to existing pronouncements of the IASB or IFRS IC for the first time during the reporting period: > Amendment to IAS 19 Employee Benefits (title of amendment: Employee Contributions) > Improvements to International Financial Reporting ­Standards (2010 – 2012 Cycle; published 2013); > Improvements to International Financial Reporting ­Standards (2011 – 2013 Cycle; published 2013).

The amendment to IAS 19 governs the recognition of contributions made by employees or third parties to pension plans to reduce the service cost insofar as the reduction reflects the service rendered during the reporting period.

The IASB makes amendments to various IFRSs via its overarching ‘Improvements to International Financial Reporting Standards’. The 2010 – 2012 Cycle amended a total of seven standards; the 2011 – 2013 Cycle amended four.

None of the above amendments have any major impact on the net assets, financial and earnings position or the cash flows of the ­­Nordzucker Group.

6 . ACCO U N T I N G S TA N DA R DS N OT A P P L I E D No IFRSs were voluntarily applied ahead of time in the consolidated financial statements of Nordzucker AG ­­ as of 29 February 2016. The pronouncements will be taken into account for the first time when their application becomes mandatory. The application of IFRS requires the European Union (EU) to first grant approval (endorsement process), which in some cases is still outstanding.

In addition, the Nordzucker ­­ Group has not yet applied IFRS 8 Operating Segments or IAS 33 Earnings Per Share; their application is only mandatory for capital market companies.

The amendments listed on the following table are not likely to have any major impact on the presentation of the net assets, financial and earnings position or the cash flows of the ­­Nordzucker Group.

Notes : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

6.1. M andatory first-time application in the 2016/2017 reporting period The following pronouncements are to be applied for the first time in the Nordzucker ­­ consolidated financial statements as of 28 February 2017: > Amendment to IAS 16 Property, Plant and Equipment and to IAS 38 Intangible Assets (title of amendment: Clarification of Acceptable Methods of Depreciation and Amortization); > Amendment to IFRS 11 Joint Arrangements (title of amendment: Accounting for Acquisitions of Interests in Joint Operations); > Amendment to IAS 16 Property, Plant and Equipment and to IAS 41 Agriculture (title of amendment: Agriculture: Bearer Plants); > Amendment to IAS 27 Separate Financial Statements (title of amendment: Equity Method in Separate Financial Statements); > Amendment to IAS 1 Presentation of Financial Statements (title of amendment: Disclosure Initiative); > Improvements to International Financial Reporting Standards (2012 – 2014 Cycle, published 2014); > Amendment to IFRS 10 Consolidated Financial Statements,

The amendment to IFRS 11 stipulates that the acquirer of an interest in a joint operation in which the activity constitutes a business, as defined in IFRS 3 Business Combinations, is required to apply all of the principles on business combinations accounting in IFRS 3 and other IFRSs and to disclose the information required in these standards for business combinations. It also clarifies that an existing interest in a joint operation is not remeasured when another interest is acquired in the same joint operation and joint control continues to exist. An exception was also included to clarify that the amendments do not apply if the parties (including the reporting entity) that share joint control are under the joint control of one party.

The amendments to IAS 16 and to IAS 41 mean that biological assets which meet the definition of bearer plants no longer fall within the scope of IAS 41 but within the scope of IAS 16.

The amendment to IAS 27 allows an entity to account for investments in subsidiaries, joint ventures and associates in its separate financial statements using the equity method.

The amendment to IAS 1 clarifies that materiality considerations apply to all parts of the financial statements and that immaterial disclosures may limit the usefulness of financial information. The place and order in which information is presented in the financial statements is also important.

IFRS 12 Disclosure of Interests in Other Entities and IAS 28 Investments in Associates and Joint Ventures (title of amendment: Investment Entities: Applying the Consolidation Exception; not yet endorsed by the EU).

The IASB makes amendments to various IFRSs via its overarching ‘Improvements to International Financial Reporting Standards’. The 2012 – 2014 Cycle amended a total of five standards.

The amendment to IAS 16 and to IAS 38 clarifies that the relationship between the revenue generated and the expected future economic benefit may not be used for the depreciation property, plant and equipment, but only in limited circumstances for the amortization of intangible assets.

Amendments to IFRS 10, IFRS 12 and IAS 28 clarify situations relating to the exemption of investment companies from the obligation to prepare consolidated financial statements.

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6.2. M andatory first-time application in the 2017/2018 reporting period or later These standards or amendments are to be applied to the ­­Nordzucker consolidated financial statements for the first time as of 28 February 2018 or for later reporting periods: > Amendment to IFRS 10 Consolidated Financial Statements and to IAS 28 Investments in Associates and Joint V ­ entures (title of amendment: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture; not yet endorsed by the EU); > IFRS 9 Financial Instruments (not yet endorsed by the EU); > IFRS 15 Revenue from Contracts with Customers (not yet endorsed by the EU); > IFRIC 16 Leases (not yet endorsed by the EU).

The amendment to IFRS 10 and IAS 28 clarifies that an investor is to recognize the full profit or loss on the sale or contribution of assets to an associate or joint venture if the assets constitute a business activity within the meaning of IFRS 3 Business Combinations.

IFRS 9 replaces the existing regulations in IAS 39 regarding accounting for financial instruments. The IASB developed and published the standard in several phases, which are now all complete. IFRS 9 contains new regulations on classifying and measuring financial assets as well as on accounting for hedging relationships. The existing guidelines on the classification and measurement of financial liabilities will largely be retained.

IFRS 15 redefines the recognition of revenue and replaces IAS 18 Revenue and IAS 11 Construction Contracts as well as the related interpretations. Revenue is to be recognized when the goods or services are transferred to the customer.

The standard also covers the presentation of the performance obligations at the level of individual contracts (contract assets or contract liabilities) and requires extensive disclosures on revenue.

IFRS 16 replaces the existing regulations in IAS 17 regarding accounting for and disclosure of leases. IFRS 16 stipulates that the lessee must recognize all leases and the related rights and obligations; the previous distinction between finance leases (recognition of the leased item as an asset) and operating leases (no recognition of the leased item as an asset; recog­ nition of lease payments as expenses) no longer applies.

Lessors still have to classify their leases as finance or operating leases and recognize them accordingly – as previously under IAS 17. The classification criteria in IAS 17 were retained for IFRS 16.

7. C H A N G E S TO T H E R E P O R T I N G S T R U C T U R E A N D C H A N G E S I N ACCO U N T I N G P O L I C I E S The presentation in the cash flow statement of how cash flow from operating activities was calculated was changed in the reporting period. The presentation for the previous year has been adjusted accordingly.

Changes in accounting policies resulting from the firsttime application of accounting standards (see Note 5) had no material effects on the presentation of the ­­Nordzucker Group’s net assets, financial and earnings position.

Notes : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

10. S A L E S COS T S

N OT E S TO T H E CO N S O L I DAT E D ­I N CO M E S TAT E M E N T

Sales costs are made up as follows:

8. REVENUES

SALES COS T S

Revenues are made up as follows:

R E VE NUE S

in EUR thousands Products Sugar Bioethanol By-products Other

1/3/2015 – 29/2/2016

1/3/2014 – 28/2/2015

Freight

– 72,456

– 78,234

Rentals, land leasing and outside warehousing costs

– 26,263

– 29,200

Personnel expenses

– 20,534

– 20,176

Depreciation, amortization and impairment

– 4,896

– 9,294

Advertising

– 9,435

– 9,813

Sales commission

– 1,463

– 2,536

– 18,857

– 19,858

– 153,904

– 169,111

in EUR thousands

1/3/2015 – 29/2/2016

1/3/2014 – 28/2/2015

1,273,953

1,500,465

94,878

86,742

153,663

183,656

84,879

95,414

1,607,373

1,866,277

Other revenues primarily include sales of merchandise.

Other costs of sales Total

11. A D M I N I S T R AT I V E E X P E N S E S Administrative expenses are made up as follows:

9. P R O D U C T I O N COS T S Production costs are made up of the following: ADMIN IS TRATIV E EXPEN S ES

PRO D UC T IO N CO S T S

in EUR thousands Cost of materials and services Personnel expenses

1/3/2015 – 29/2/2016

1/3/2014 – 28/2/2015

– 1,140,452

– 1,318,171

– 118,095

– 126,805

Depreciation, amortization and impairment

– 66,293

– 67,096

Other expenses

– 40,313

– 40,582

– 1,365,153

– 1,552,654

Total

1/3/2015 – 29/2/2016

1/3/2014 – 28/2/2015

Personnel expenses

– 41,732

– 41,793

Consultancy fees

– 15,045

– 14,578

Fees and levies

– 4,384

– 4,331

Depreciation, amortization and impairment

– 2,703

– 2,911

Rentals and land leasing

– 2,382

– 2,627

Travel costs

– 1,673

– 2,582

Phone/communications

– 1,258

– 1,443

in EUR thousands

Other administrative expenses Total

– 10,153

– 13,767

– 79,330

– 84,032

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12 . OT H E R I N CO M E

13. OT H E R E X P E N S E S

Other income is made up as follows:

Other expenses are made up as follows:

OT HE R IN CO M E

OTH ER EXPEN S ES

1/3/2015 – 29/2/2016

1/3/2014 – 28/2/2015

27,180

24,456

Income from the reversal of provisions

5,562

19,879

Foreign exchange gains

1,795

3,225

141

627

in EUR thousands Insurance and other c­ ompensation for damages

Proceeds from disposal of non-current assets Reversals of impairments on receivables

307

352

591

634

Rental and leasing income

516

484

Reversals of impairment of ­intangible assets as well as ­property, plant and equipment

770

178

Total

5,579

12,196 62,031

Insurance and other compensation for damages in the reporting period consists mainly of compensation of EUR 12,032 thousand (previous year: EUR 18,536 thousand) and EUR 12,038 thousand (previous year: EUR 5,540 thousand) as a result of fires in a silo in Uelzen and an external warehouse in Tjustorp in Sweden respectively.

Income from the reversal of provisions in the reporting period stemmed mainly from the reversal of provisions for fire damage, litigation risks and onerous contracts. In the previous year, the item consisted primarily of income from the reversal of provisions for litigation risks.

Foreign currency gains and the foreign currency losses disclosed under other expenses are mainly due to the movement of the relevant national currencies against the Euro.

1/3/2014 – 28/2/2015

– 144

– 34,626

– 13,381

– 33,356

Research and development

– 4,961

– 5,149

Foreign exchange losses

– 2,099

– 3,566

Losses from disposal of non-current assets

– 1,385

– 2,047

Impairments on receivables

– 296

– 1,656

Personnel expenses

– 901

– 317

– 12,038

– 15,792

– 35,205

– 96,509

Other operating expenses

42,441

1/3/2015 – 29/2/2016

Depreciation, amortization and impairment Expenses from loss events

Income from the reversal of ­investment subsidies, grants and other receivables

Miscellaneous operating income

in EUR thousands

Total

Expenses for loss events in the reporting period consists mainly of expenses of EUR 11,322 thousand (previous year: EUR 24,417 thousand) and EUR 675 thousand (previous year: EUR 8,913 thousand) as a result of fires in a silo in Uelzen and an external warehouse in Tjustorp in Sweden respectively.

14. F I N A N C I A L I N CO M E Financial income is made up as follows:

F IN AN CIAL IN COME

1/3/2015 – 29/2/2016

1/3/2014 – 28/2/2015

Income from other investments

5,860

5,798

Other interest and similar income

7,532

1,135

Interest income on bank balances

91

214

in EUR thousands

Other financial income Total

96

21

13,579

7,168

Net income/loss from other investments refers to dividends.

Other interest and similar income in the reporting period relates mainly to interest income on the court-ordered repayment of production levies for prior years.

Further information on net income from financial instruments can be found in Note 42.

Notes : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

15. F I N A N C I A L E X P E N S E S

Income tax expense is made up by origin as follows:

Financial expenses are made up as follows: IN COME TAXES FINAN CIAL E X P E N S E S

in EUR thousands 1/3/2015 – 29/2/2016

1/3/2014 – 28/2/2015

Interest expense on provisions

– 3,837

– 5,480

Other interest and similar expenses

– 1,585

– 1,597

in EUR thousands

Interest expense from bank balances Other financial expenses Total

– 809

– 700

– 1,332

– 2,489

– 7,563

– 10,266

Additional information on net income from financial instruments can be found in Note 42.

16 . R E S U LT F R O M CO M PA N I E S ACCO U N T E D F O R U S I N G T H E EQ U I T Y M E T H O D The net income/loss from companies accounted for using the equity method improved by EUR 385 thousand compared with the previous reporting period. Companies accounted for using the equity method are shown in the balance sheet under the ‘Financial investments’ item (see Notes 25.1 and 25.2).

17. I N CO M E TA X E S Income taxes include taxes on income paid or owed in the individual countries and deferred taxes. Income taxes consist of trade tax, corporation tax, solidarity surcharge and the equivalent foreign income taxes.

1/3/2014 – 28/2/2015

Current taxes Current domestic taxes

– 3,620

731

Current foreign taxes

– 4,958

– 16,576

– 8,578

– 15,845

– 4,132

5,979

5,448

7,419

Deferred taxes Deferred domestic taxes Deferred foreign taxes Income taxes

Interest expense from bank balances comprises both interest on lines of credit drawn and fees.

1/3/2015 – 29/2/2016

1,316

13,398

– 7,262

– 2,447

The current and deferred income taxes affecting previous years reduced net income by EUR 496 thousand.

The expected income tax expense which would have been payable if the tax rate for the parent company N ­ ordzucker AG of 29.00 per cent (previous year: 29.00 per cent) were applied to the consolidated net income under IFRS before taxes and minority interests can be reconciled with the income taxes in the income statement as follows:

TAX EXPEN S E

in EUR thousands

1/3/2015 – 29/2/2016

1/3/2014 – 28/2/2015

IFRS net profit before income taxes

22,153

22,434

Group tax rate in %

29.00 %

29.00 %

Expected tax expense

– 6,424

– 6,505

Tax rate variances

– 1,370

1,394

Taxes for prior years

– 479

1,731

Tax-free income

1,740

2,785

Non-deductible operating ­expenses for tax purposes

– 688

– 1,647

Other effects

– 41

– 205

Tax expense

– 7,262

– 2,447

The corporation tax rate for stock corporations based in Germany is 15 per cent plus 5.5 per cent solidarity surcharge on the corporation tax liability.

Companies based in Germany are also liable for trade tax at a rate determined by multipliers set by the local council.

81

82

N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Notes

The effects of differences between foreign tax rates and the Group tax rate for ­Nordzucker AG (29.00 per cent) are shown in the reconciliation statement under tax rate differences between Germany and abroad.

Deferred tax assets and liabilities result primarily from temporary valuation differences between the IFRS financial statements and the financial statements of the individual Group companies for local tax purposes for the following items:

DE FE R R E D TAX E S BY BA L A N C E S H E E T I T E M

29/2/2016

28/2/2015

in EUR thousands

Deferred tax assets

Deferred tax liabilities

Deferred tax assets

Intangible assets

441

1,054

529

638

Property, plant and equipment

2,087

111,261

2,027

113,071

Inventories

1,064

10,298

1,744

9,215

374

1,134

733

1,384

36,005

81

36,472

642

Other provisions

1,449

0

4,225

234

Other liabilities

1,292

3,889

1,064

8,754

42,712

127,717

46,794

133,938

7,522

0

7,981

0

50,234

127,717

54,775

133,938

– 44,651

– 44,651

– 49,983

– 49,983

5,583

83,066

4,792

83,955

Other assets Pension provisions

Deferred taxes on temporary differences Deferred tax assets on tax loss carry-forwards Gross amount Netting Balance sheet amount

The changes of EUR 1,680 thousand in total in deferred taxes as of the reporting date as shown in the consolidated balance sheet were recognized in profit or loss (i.e. in the income statement) at EUR 1,316 thousand (previous year: EUR 13,398 thousand) An additional amount of EUR 364 thousand (previous year: EUR 22,145 thousand) was recognized outside of profit or loss (i.e. in the statement of comprehensive income). Changes due to exchange rates are presented in the ‘Exchange differences on translating foreign operations’ item.

Deferred tax assets and liabilities are offset for each company or taxable entity. To the extent that deferred taxes relate to private partnerships, netting out only takes place at the level of ­Nordzucker AG for corporation tax purposes. Deferred trade taxes are netted out at the level of the individual private partnerships.

Deferred tax liabilities

Notes : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

The following table shows the changes in deferred tax assets and deferred tax liabilities as shown both within and outside of profit and loss:

CHAN GE S IN D E F E RRE D TA XE S

1/3/2015 – 29/2/2016

1/3/2014 – 28/2/2015

in EUR thousands

Deferred tax assets

Deferred tax liabilities

Deferred tax assets

Deferred tax liabilities

Intangible assets

– 88

– 416

491

7,372

60

1,810

164

3,891

Inventories

– 680

– 1,083

– 642

– 355

Other assets

– 359

250

338

– 328

Pension provisions

– 467

561

21,616

– 642

– 2,776

234

– 5,349

0

228

4,865

– 100

1,106

– 4,082

6,221

16,518

11,044

– 459

0

7,981

0

– 4,541

6,221

24,499

11,044

Property, plant and equipment

Other provisions Other liabilities Deferred taxes on temporary differences Deferred tax assets on tax loss carry-forwards Total

With regard to the surplus of deferred tax assets over deferred tax liabilities at the level of individual companies in the balance sheet, the value of the deferred tax assets is considered to be sufficiently certain, based on the current earnings situation and/or business planning.

In the financial year, no deferred tax assets were recognized for foreign tax loss carry-forwards of EUR 11,753 thousand (previous year: EUR 7,002 thousand) as no positive taxable income is expected in the near future. In the financial year, no deferred tax assets were recognized for domestic tax loss carry-­forwards of EUR 298 thousand (previous year: EUR 1,136 thousand) as no positive taxable income is expected in the near future.

No deferred tax assets were recognized for temporary differences on investments by subsidiaries of EUR 192,715 thousand (previous year: EUR 166,430 thousand) because the ­Nordzucker Group is able to control the timing of the reversal and the temporary differences will not be reversed in the foreseeable future.

18 . COS T O F M AT E R I A L S A N D S E R V I C E S The cost of materials and services is made up as follows:

COS T OF MATERIAL S AN D S ERV ICES

in EUR thousands

1/3/2015 – 29/2/2016

1/3/2014 – 28/2/2015

– 824,210

– 1,248,710

Cost of raw materials, consumables and supplies and of purchased ­merchandise Cost of purchased services Total

– 92,772

– 109,049

– 916,982

– 1,357,759

19. P E R S O N N E L E X P E N S E S Personnel expenses are made up as follows:

PERS ON N EL EXPEN S ES

in EUR thousands Wages and salaries Social security contributions and other social expenses Expenses for defined contribution plans Expenses for defined benefit plans Total

1/3/2015 – 29/2/2016

1/3/2014 – 28/2/2015

– 149,814

– 156,151

– 22,564

– 26,300

– 8,768

– 9,400

– 5,499

– 3,477

– 186,645

– 195,328

83

84

N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Notes

Expenses for defined benefit and defined contribution plans consist of Group expenses for defined benefit and defined contribution pension plans and similar obligations. The expenses for defined benefit plans affect service costs. They do not contain the net interest expenses of defined benefit obligations associated with pension expenses. These are shown in the income statement under ‘Financial expenses’.

In the reporting period, the N ­ ordzucker Group had an average of 3,206 employees (previous year: 3,284 employees).

2 0. D E P R EC I AT I O N , A M O R T I Z AT I O N A N D I M PA I R M E N T Depreciation, amortization and impairment are made up as follows:

N OT E S TO T H E CO N S O L I DAT E D B A L A N C E S H E E T 21. I N TA N G I B L E A SS E T S Changes in the individual items of intangible assets are shown in the statement of changes in non-current assets.

At the end of the reporting period, there were no intangible assets with indefinite useful lives.

In the reporting period, research and development expenses of EUR 4,961 thousand (previous year: EUR 5,149 thousand) were recognized in the income statement. These expenses are attributed in full to the item ‘Other expenses’.

2 2 . P R O P E R T Y, P L A N T A N D EQ U I P M E N T DE PR E C IAT IO N , AMO R T I Z AT I O N A N D I M PA I R M E N T

in EUR thousands Depreciation or amortization of intangible assets, property, plant and equipment, and investment property Impairment of intangible assets, property, plant and equipment, and investment property Total

1/3/2015 – 29/2/2016

– 73,702

1/3/2014 – 28/2/2015

– 78,954

– 641

– 35,388

– 74,343

– 114,342

Impairment losses in the previous year relate mainly to writedowns of EUR 34,398 thousand on intangible assets recognized in the course of the acquisition of the Nordic Sugar Group.

We refer to the statement of changes in non-current assets for the ­Nordzucker Group for changes in property, plant and equipment.

Assets capitalized within a finance lease under IAS 17 primarily include a storage reservoir in Stöcken and a silo in Saxkøbing. The leased items are presented as technical plant and machinery.

In the reporting period, the ­Nordzucker Group received compensation of EUR 0 (previous year: EUR 161 thousand) for the loss or impairment of items of property, plant and equipment from third parties, e.g. insurance companies.

As of the end of the reporting and the comparative period, items of property, plant and equipment in the amount of EUR 5,400 thousand were pledged as collateral for liabilities.

23. I MPAIRMENT TES T F OR INTANG IBLE A SSETS AND ITEMS OF PROPERT Y, PL ANT AND EQU IPMENT Impairment tests for intangible assets and items of property, plant and equipment are mainly performed on the basis of the values in use for cash-generating units. To date, the cash-­generating units have been determined according to the business activities of the N ­ ordzucker Group and taking regional aspects into account. The way in which cash-­ generating units are identified has been altered as a result

Notes : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

of the reorganization of the N ­ ordzucker Group on a functional basis. Impairment testing was carried out by regions or countries until 31 January 2015. As of 31 January 2015, the impairment tests are performed by a cash-generating unit that contains all the Group’s cash flows from sugar sales, as well as the related assets and liabilities.

In the reporting period and in the comparative period, an impairment test was performed for intangible assets and items of property, plant and equipment at the Nordic Sugar Group.

The recoverable amount is based on the value in use in each case. The pre-tax interest rate used to discount the cash flows for this cash-generating unit was around 7.24 per cent (previous year: 7.62 per cent). A growth rate of 0 per cent (previous year: 0 per cent) was assumed for the long-term earnings component of the discounted cash flow calculation.

Price falls and the end of the sugar market regime in 2017 have considerably lowered expectations for the future of the Nordic Sugar Group. As such, the financial years after 2017 are expected to see significantly lower earnings than had previously been projected. In the previous year, this change in market outlook required an impairment loss of EUR 34,398 thousand on the assets recognized during the acquisition of the Nordic Sugar Group. No impairment charges were ­recognized in the reporting period.

24. I N V E S T M E N T P R O P E R T Y Investment property in the ­Nordzucker Group mainly consists of flats and land not required for operating purposes.

In the reporting period, rental income of EUR 29 thousand (previous year: EUR 44 thousand) was generated, offset by expenses of EUR 12 thousand (previous year: EUR 21 thousand). There were also expenses of EUR 35 thousand (previous year: EUR 134 thousand) for which there was no corresponding rental income.

The fair value of the property is EUR 6,172 thousand as of the reporting date (previous year: EUR 7,241 thousand). Fair value was determined on the basis of internal estimates using comparable properties.

No subsequent acquisition costs were capitalized in the reporting period or in the comparative period.

2 5. F I N A N C I A L I N V E S T M E N T S There were no significant changes in the N ­ ordzucker Group’s financial investments in the reporting period.

25.1. J oint ventures accounted for using the equity method There were no joint ventures accounted for using the equity method that were individually or collectively material for the presentation of the net assets, financial position and earnings of the N ­ ordzucker Group in either the reporting period or the same period of the previous year.

25.2. A ssociates accounted for using the equity method The acquisition of 25 per cent of the shares in August T ­ öpfer Zuckerhandelsgesellschaft mbH & Co. KG, Hamburg, which was approved by the German competition authorities on 8 April 2015, meant that August Töpfer Zuckerhandelsgesellschaft mbH & Co. KG was consolidated as an associated company using the equity method for the first time in the reporting period.

There were no associates accounted for using the equity method that were individually or collectively material for the presentation of the net assets, financial position and earnings of the N ­ ordzucker Group in either the reporting period or the same period of the previous year.

25.3. Other financial investments Financial assets in the measurement category ‘Available-­forsale financial assets’ as shown in other financial investments are recognized at the reporting date either at fair value or at cost (see Note 3.8).

The shares in Tereos TTD a.s. are disclosed here, despite a stake of 35.38 per cent, because the company’s articles do not permit the Group to exercise significant influence over its operating and financial policy.

The ­Nordzucker Group received dividends of EUR 5,802 thousand in the reporting year (previous year: EUR 5,744 thousand).

85

86

N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Notes

CONSOLIDAT ED S TAT E M E N T O F CH A NGE S IN NO N -CU R R E N T A S S E T S 2 0 1 5 / 2 0 1 6 ­Nordzucker AG, Braunschweig, Germany

Cost or fair value in EUR thousands

As of 1/3/2015

Currency effects

Additions

Reclassifications

Disposals

As of 29/2/2016

0

0

0

0

0

0

53,878

– 267

3

0

– 1,325

52,289

2,720

0

0

0

0

2,720

101,029

60

1,432

398

– 67,262

35,657

Intangible assets Goodwill Rights, patents and licences Internally generated intangible assets Other intangible assets Advance payments made

1,887

0

691

– 255

0

2,323

159,514

– 207

2,126

143

– 68,587

92,989

Property, plant and equipment Land and buildings Technical plant and machinery Other plant, operating and office equipment Advance payments made and plant under construction Investment property

451,851

– 1,651

3,774

2,667

– 1,021

455,620

1,700,399

– 1,883

41,139

6,895

– 9,180

1,737,370

47,040

– 148

3,242

405

– 2,225

48,314

9,068

– 39

9,794

– 8,616

– 52

10,155

2,208,358

– 3,721

57,949

1,351

– 12,478

2,251,459

6,263

0

0

– 1,529

– 67

4,667

2,374,135

– 3,928

60,075

– 35

– 81,132

2,349,115

CONSOLIDAT ED S TAT E M E N T O F CH A NGE S IN NO N -CU R R E N T A S S E T S 2 0 1 4 / 2 0 1 5 ­Nordzucker AG, Braunschweig, Germany

Cost or fair value As of 1/3/2014

Currency effects

Goodwill

89,028

Rights, patents and licences

53,708

in EUR thousands

As of 28/2/2015

Additions

Reclassifications

Disposals

– 8

0

0

– 89,020

0

21

149

0

0

53,878

Intangible assets

Internally generated intangible assets Other intangible assets Advance payments made

2,981

0

0

– 1

– 260

2,720

100,397

– 1,306

2,575

574

– 1,211

101,029

1,492

0

960

– 565

0

1,887

247,606

– 1,293

3,684

8

– 90,491

159,514

Property, plant and equipment Land and buildings Technical plant and machinery Other plant, operating and office equipment Advance payments made and plant under construction Investment property

449,399

– 2,135

6,627

1,940

– 3,980

451,851

1,656,698

– 7,935

60,108

5,968

– 14,440

1,700,399

46,247

– 132

3,286

198

– 2,559

47,040

8,999

– 248

8,605

– 8,117

– 171

9,068

2,161,343

– 10,450

78,626

– 11

– 21,150

2,208,358

9,417

0

14

– 3,123

– 45

6,263

2,418,366

– 11,743

82,324

– 3,126

– 111,686

2,374,135

Notes : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

Accumulated depreciation, amortization and impairment

Carrying amounts

Reversals of impairment

Reclassifications

Disposals

As of 29/2/2016

As of 29/2/2016

As of 28/2/2015

0

0

0

0

0

0

0

– 2,841

0

0

1

1,325

– 49,806

2,483

5,334

– 104

0

0

0

0

– 2,616

104

208

– 2,278

0

0

– 1

67,176

– 18,298

17,359

17,894

As of 1/3/2015

Currency effects

Depreciation, amortization Impairment

0

0

0

– 48,544

253

– 2,512

0

– 83,135

– 60

0

0

0

0

0

0

0

0

2,323

1,887

– 134,191

193

– 5,223

0

0

0

68,501

– 70,720

22,269

25,323

– 250,876

484

– 8,344

– 73

653

– 872

273

– 258,755

196,865

200,975

– 1,071,017

568

– 57,677

– 568

2

– 2

8,533

– 1,120,161

617,209

629,382

– 37,602

111

– 2,457

0

0

0

2,215

– 37,733

10,581

9,438

– 15

0

0

0

15

0

0

0

10,155

9,053

– 1,359,510

1,163

– 68,478

– 641

670

– 874

11,021

– 1,416,649

834,810

848,848

– 2,742

0

– 1

0

100

874

31

– 1,738

2,929

3,521

– 1,496,443

1,356

– 73,702

– 641

770

0

79,553

– 1,489,107

860,008

877,692

As of 1/3/2014

Currency effects

As of 28/2/2015

Accumulated depreciation, amortization and impairment Depreciation, amortization Impairment

Carrying amounts

Reversals of impairment

Reclassifications

Disposals

As of 28/2/2015

As of 28/2/2014

– 89,028

8

0

0

0

0

89,020

0

0

0

– 44,800

– 21

– 2,944

– 779

0

0

0

– 48,544

5,334

8,908

– 2,662

0

– 108

0

0

0

258

– 2,512

208

319

– 44,048

848

– 7,387

– 33,619

0

– 2

1,073

– 83,135

17,894

56,349

0

0

0

0

0

0

0

0

1,887

1,492

– 180,538

835

– 10,439

– 34,398

0

– 2

90,351

– 134,191

25,323

67,068

– 246,230

489

– 8,225

– 684

0

0

3,774

– 250,876

200,975

203,169

– 1,029,837

3,678

– 57,382

– 261

32

– 1

12,754

– 1,071,017

629,382

626,861

– 37,257

97

– 2,879

0

0

– 1

2,438

– 37,602

9,438

8,990

– 147

0

0

– 15

0

0

147

– 15

9,053

8,852

– 1,313,471

4,264

– 68,486

– 960

32

– 2

19,113

– 1,359,510

848,848

847,872

– 4,902

0

– 29

– 30

147

2,065

7

– 2,742

3,521

4,515

– 1,498,911

5,099

– 78,954

– 35,388

179

2,061

109,471

– 1,496,443

877,692

919,455

87

88

N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Notes

26 . I N V E N TO R I E S

2 9. F I N A N C I A L A SS E T S

Unfinished goods mainly consist of the thick juice required to produce bioethanol and granulated products.

Financial assets are made up as follows:

Write-downs and reversals of write-downs (write-backs) on inventories are recognized in the ‘Production cost’ item of the income statement. Write-downs of EUR 1,256 thousand (previous year: EUR 11,338 thousand) and write-backs of EUR 3,916 thousand (previous year: EUR 1,931 thousand) were recognized in the reporting year. Write-downs in the reporting period and the previous year mainly related to inventories damaged by fire and other damaged stocks.

27. T R A D E R EC E I VA B L E S

in EUR thousands

29/2/2016

28/2/2015

Positive fair value of derivative financial instruments Claims for damages Other financial assets Balance sheet amount

1,509

3,892

11,773

3,357

7,232

5,948

20,514

13,197

Details on the default risks and the age structure can be found in Note 43.2.

Trade receivables are made up as follows:

3 0. OT H E R A SS E T S

T R AD E R E CE IVABL E S

in EUR thousands

F IN AN CIAL AS S ET S

29/2/2016

28/2/2015

129,091

141,149

Gross trade receivables Write-downs on trade receivables Balance sheet amount

– 1,755

– 2,260

127,336

138,889

Other assets are made up as follows:

OTH ER AS S ET S

in EUR thousands Receivables from other taxes

Information on the default risks and the age structure of trade receivables is given in Note 43.2. Write-downs on trade receivables in the reporting period amounted to EUR 296 thousand (previous year: EUR 1,656 thousand).

29/2/2016

28/2/2015

10,793

34,795

Miscellaneous other assets

28,795

7,953

Balance sheet amount

39,588

42,748

Miscellaneous other assets in the reporting period relate mainly to interest owed on the court-ordered repayment of production levies for prior years.

28. R EC E I VA B L E S F R O M R E L AT E D PA R T I E S Receivables from related parties are made up as follows:

31. A SS E T S H E L D F O R S A L E R E C E IVABL E S FRO M RE L AT E D PA R T I E S

in EUR thousands Receivables from joint ventures Receivables from other related parties Balance sheet amount

29/2/2016

28/2/2015

897

67

17

0

914

67

Details on the default risks and the age structure can be found in Note 43.2.

Assets classified as held for sale in accordance with IFRS 5 consist of land and buildings with a carrying amount of EUR 1,516 thousand (previous year: EUR 1,703 thousand). They only gave rise to immaterial income, expenses and cash flows in the reporting period and the previous year.

Notes : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

32 . S H A R E H O L D E R S’ EQ U I T Y

32.3. Retained earnings

Changes in Group shareholders’ equity are shown in the statement of changes in shareholders’ equity.

Retained earnings are made up of the net income earned in prior financial years and the current period by the companies included in the consolidated financial statements. Goodwill arising on acquisitions made by the Group before 1 March 2004 has been offset against reserves. In the IFRS opening balance sheet the balancing item from the conversion of financial statements prepared in foreign currencies was offset against retained earnings.

Capital management at the N ­ ordzucker Group is founded on a strong equity base and a sustainable dividend policy in order to secure current operations on the one hand and to enable a reasonable dividend yield for the shareholders on the other. As of 29 February 2016, the equity ratio came to 64 per cent (previous year: 59 per cent). The Executive Board will put a proposal at the Annual General Meeting to distribute a dividend of EUR 0.10 per share (previous year: EUR 0.10 per share). ­ ordzucker AG’s Articles of Association do not require any N particular amount of equity. The Executive Board manages the Group with the aim of generating a profit. It does this by means of capital-market-related targets for the company which are measured in terms of specific financial indicators.

The main financial indicators for the Group are EBITDA margin, return on sales, equity ratio and return on equity, for which targets have been set.

Retained earnings include statutory reserves of 10 per cent of subscribed capital, amounting to EUR 12,365 thousand which, in line with statutory regulations (Sec. 150 AktG ­[German Stock Corporation Act]), are not available for distribution to shareholders.

32.4. Other comprehensive income Other comprehensive income is made up as follows:

OTH ER COMPREH EN S IV E IN COME

32.1. Subscribed capital As of the reporting date, subscribed capital (ordinary share capital) remained unchanged at EUR 123,651,328.00 and was divided into 48,301,300 registered common shares.

29/2/2016

28/2/2015

– 88,185

– 88,850

Exchange differences on translating foreign operations

31,373

33,252

Net result of cash flow hedges

– 1,032

– 785

– 57,844

– 56,383

in EUR thousands Remeasurement of defined benefit plans

The ordinary share capital is fully paid in and, as in the previous year, has a nominal share of subscribed capital of EUR 2.56 per share.

Balance sheet amount

As of the reporting date, ­Nordzucker Holding AG, Braunschweig, Germany, had provided evidence that it held more than 50 per cent of the shares, with 84.06 per cent.

32.5. Non-controlling interests Non-controlling interests exist primarily in the following companies:

32.2. Capital reserves The capital reserves have been formed from share premiums paid in the course of capital increases by ­Nordzucker AG.

N ON -CON TROLLIN G IN TERES T S

29/2/2016

28/2/2015

Sucros Oy

22,753

24,983

AB Nordic Sugar Kėdainiai

12,615

12,598

Norddeutsche Flüssigzucker GmbH & Co. KG

2,282

2,397

Považský cukor a.s.

1,452

1,574

82

81

in EUR thousands

­Nordzucker Polska S.A. Matra Cukor z.r.t.

Balance sheet amount

2

3

39,186

41,636

89

90

N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Notes

Total net income for the period attributable to non-controlling interests, amounting to EUR – 675 thousand, came largely from Norddeutsche Flüssigzucker GmbH & Co. KG (EUR 164 thousand), Sucros Oy (EUR – 739 thousand) and from Považský Cukor a.s. (EUR – 122 thousand). In the previous year, total net income for the period attributable to non-controlling ­interests of EUR – 725 thousand came mainly from Norddeutsche Flüssigzucker GmbH & Co. KG (EUR 488 thousand), Sucros Oy (EUR – 579 thousand), AB Nordic Sugar Kėdainiai (EUR – 478 thousand) and Považský Cukor a.s. (EUR – 161 thousand).

33. P E N S I O N O B L I G AT I O N S Provisions for pension obligations are made for accrued and current benefits of both currently active and former members of staff of ­Nordzucker Group and of their surviving dependants.

Pension obligations are structured in line with the legal, fiscal and economic conditions in each country.

The Group offers both defined contribution and defined benefit plans. Pension commitments are based on collective agreements and in a few cases on individual agreements with fixed benefit amounts.

The defined benefit plans have commitments both covered by provisions and funded by plan assets. As such, reinsurance was pledged to the beneficiaries for some of the benefit plans in 2005. Furthermore, the ­Nordzucker Group has concluded an additional pension commitment with a pension fund for some of the benefit plans. As such, 80 per cent of pension obligations can now be funded in full in exchange for a single premium.

In 2012, the ­Nordzucker Group concluded a defined benefit plan for all new employees that distributes the biometric risks between the employee and the employer. The benefit plan involves changing to a capital commitment with market-­ based interest.

In the reporting period, the expenses for defined contri­ bution plans amounted to EUR 8,768 thousand (previous year: EUR 9,400 thousand).

Provisions for pension benefits are determined in accordance with IAS 19 on the basis of actuarial assumptions. In the reporting and comparative period, the following weighted financial assumptions were applied:

FINANCIAL ASSUMPTIONS REGARDING PENSION OBLIGATIONS

2015/2016 reporting period

2014/2015 comparative period

Domestic

Foreign

Domestic

Foreign

Discount rate

1.80 %

2.30 %

1.60 %

2.00 %

Salary increase

2.50 %

3.00 %

2.50 %

3.00 %

Pension increase

1.50 %

1.50 %

1.50 %

1.50 %

For domestic companies in the ­ Nordzucker Group the assumptions for life expectancy are taken from the actuarial tables 2005 G by Dr Klaus Heubeck.

With a discount rate of 1.8 per cent (previous year: 1.6 per cent), the duration of domestic obligations was 21.1 years (previous year: 21.7 years). With a discount rate of 2.3 per cent (previous year 2.0 per cent), the duration of foreign obligations was 14.0 years (previous year: 21.0 years).

The following table shows the percentage effect that a change in assumptions would have on the defined benefit obligations at the reporting date, provided the other assumptions remained unchanged:

S EN S ITIV IT Y AN ALYS IS

2015/2016 reporting period

Discount rate

Salary increase

Pension increase

2014/2015 comparative period

Domestic

Foreign

Domestic

Foreign

+ 0.5 %

– 7.86 %

– 6.00 %

– 8.35 %

– 6.18 %

– 0.5 %

8.97 %

6.67 %

9.63 %

6.90 %

+ 0.5 %

0.47 %

1.40 %

0.67 %

1.34 %

– 0.5 %

– 0.45 %

– 1.26 %

– 0.64 %

– 1.21 %

+ 0.5 %

4.76 %

5.68 %

4.99 %

5.91 %

– 0.5 %

– 4.38 %

– 5.23 %

– 4.55 %

– 5.42 %

Notes : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

Provisions for pensions and similar obligations disclosed in the balance sheet changed as follows:

CHAN GE IN PE N S I O N P ROV I S I O N S

Defined benefit obligation

Plan assets

Net liability

in EUR thousands

Domestic

Foreign

Total

Domestic

Foreign

Total

Total

As of 1/3/2014

190,259

45,189

235,448

72,016

7,270

79,286

156,162

Service cost

3,130

347

3,477

/

/

/

3,477

Interest expense/interest income

6,469

1,304

7,773

2,422

210

2,632

5,141

0

30

30

0

0

0

30 8,648

Other value changes

9,599

1,681

11,280

2,422

210

2,632

Return on plan assets

/

/

/

40

241

281

– 281

Actuarial gains/losses

62,594

11,437

74,031

/

/

/

74,031

Total remeasurements (not recorded in the income statement)

73,750

Total recognized on the income statement

62,594

11,437

74,031

40

241

281

Payments made for reinsurance

/

/

/

102

74

176

– 176

Reimbursements from reinsurance

/

/

/

– 5,507

– 605

– 6,112

6,112

– 9,038

– 2,668

– 11,706

0

0

0

– 11,706

Pension payments made Exchange rate differences and other adjustments

/

– 2,148

– 2,148

/

0

0

– 2,148

253,414

53,491

306,905

69,073

7,190

76,263

230,642

Service cost

4,993

506

5,499

/

/

/

5,499

Interest expense/interest income

4,055

855

4,910

1,105

103

1,208

3,702

0

– 13

– 13

0

0

0

– 13

9,048

1,348

10,396

1,105

103

1,208

9,188

As of 28/2/2015

Other value changes Total recognized on the income statement Return on plan assets

/

/

/

– 12,808

– 648

– 13,456

13,456

Actuarial gains/losses

– 10,914

– 3,181

– 14,095

/

/

/

– 14,095 – 639

Total remeasurements (not recorded in the income statement)

– 10,914

– 3,181

– 14,095

– 12,808

– 648

– 13,456

Payments made for reinsurance

/

/

/

102

35

137

– 137

Reimbursements from reinsurance

/

/

/

– 5,157

– 635

– 5,792

5,792

– 8,850

– 2,756

– 11,606

0

0

0

– 11,606

Pension payments made Exchange rate differences and other adjustments As of 29/2/2016

/

115

115

/

0

0

115

242,698

49,017

291,715

52,315

6,045

58,360

233,355

The actuarial losses in the reporting period and the previous year are primarily attributable to changes in the discount rate.

For the 2016/2017 reporting period, contributions to plan assets are expected to amount to EUR 719 thousand (previous year: EUR 719 thousand).

91

92

N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Notes

3 4. OT H E R P R OV I S I O N S Other provisions are made up as follows:

OT HE R PROVISIO N S

in EUR thousands

As of 28/2/2015

Exchangerate effects

Additions/ reclassifications

Usage

Reversal

As of 29/2/2016

Litigation risks and risk provisions

25,082

– 3

19,320

– 507

– 468

43,424

Staff-related provisions

21,929

– 73

13,063

– 12,646

– 1,044

21,229

Provisions for suppliers and customers

17,471

– 1

– 2,005

– 8,944

– 189

6,332

Miscellaneous other provisions Balance sheet amount

35,966

– 11

2,536

– 9,546

– 3,956

24,989

100,448

– 88

32,914

– 31,643

– 5,657

95,974

Provisions for litigation risks and other risks were mainly made to reflect the risks of various ongoing legal proceedings and other legal risks. Additions recognized in the reporting period relate largely to forecast legal consultancy fees.

Staff-related provisions consist mainly of provisions for profit-­ sharing, bonuses and other gratuities, holiday and flexitime entitlements and partial early retirement, as well as for early retirement and severance pay obligations.

Provisions for suppliers and customers relate to variable payments to beet suppliers and to bonus and commission payments to customers.

Miscellaneous other provisions partly relate to recultivation obligations. The provision made for this includes the forecast expenses for the demolition of buildings and recultivation of land used for operations as well as demolition obligations at former production sites. Miscellaneous other provisions were made in the reporting period for outstanding invoices and other anticipated expenses. Miscellaneous other provisions used in the reporting period related mainly to provisions for onerous contracts made in prior periods.

35. F I N A N C I A L L I A B I L I T I E S Financial liabilities are made up as follows:

F IN AN CIAL LIABILITIES

29/2/2016

28/2/2015

Liabilities to banks

5,400

5,403

Liabilities from finance leases

2,008

2,252

Balance sheet amount

7,408

7,655

TEUR

A syndicated loan has been taken out for an initial period of five years to secure the ­Nordzucker Group’s access to liquidity.

The syndicated loan is available to fund short-term operating business and includes a revolving credit for EUR 400,000 thousand of which EUR 400,000 thousand (previous year: EUR 400,000 thousand) was unused in the reporting period.

Interest on the revolving credit partly depends on a certain financial indicator (EBITDA in relation to debt).

In the reporting period and comparative period, the ­Nordzucker Group did not pledge any financial assets as collateral for financial liabilities.

Notes : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

36 . T R A D E PAYA B L E S

39. OT H E R L I A B I L I T I E S

Trade payables are made up as follows:

Other liabilities are made up as follows:

T R ADE PAYABL E S

OTH ER LIABILITIES

29/2/2016

28/2/2015

Liabilities towards sugar beet suppliers

97,762

229,833

Other trade payables

85,440

97,515

183,202

327,348

in EUR thousands

Balance sheet amount

in EUR thousands Outstanding social security contributions

29/2/2016

28/2/2015

17,869

20,195

Investment grants, subsidies and other support payments

9,631

10,221

Deferrals

2,529

4,561

Advance payments received for orders

37. L I A B I L I T I E S TOWA R DS R E L AT E D PA R T I E S

75

196

Miscellaneous other liabilities

25,813

19,149

Balance sheet amount

55,917

54,322

Liabilities towards related parties are made up as follows:

L IABIL IT IE S TOWA RD S R E L AT E D PA R T I E S

in EUR thousands

29/2/2016

Liabilities towards joint ventures

28/2/2015

6,062

6,162

Liabilities towards other related parties

31,822

39,115

Balance sheet amount

37,884

45,277

38. OTHER FINANCIAL LIABILITIES

Liabilities from investment grants, subsidies and other support payments derive from public subsidies in connection with the purchase or production of subsidized property, plant and equipment. They are reversed through the income statement over the useful life of the subsidized assets.

In the reporting year and the previous year, the miscellaneous other liabilities primarily comprised liabilities from production levies. In the reporting year, they also included liabilities from interest income on the court-ordered repayment of production levies for prior years.

Other financial liabilities are made up as follows:

N OT E S TO T H E CO N S O L I DAT E D C A S H F LO W S TAT E M E N T

OT HE R FINAN C I A L L I A B I L I T I E S

29/2/2016

28/2/2015

Negative fair value of derivative financial instruments

7,477

4,281

Miscellaneous financial liabilities

11,771

1,772

Balance sheet amount

19,248

6,053

in EUR thousands

Miscellaneous financial liabilities include payments of EUR 10,026 thousand received for trade receivables sold as part of the ABS programme. These proceeds are owed to the purchaser of the receivables.

4 0. C OMPONENTS OF CASH A N D C A S H EQ U I VA L E N T S Cash and cash equivalents in the cash flow statement comprise all cash and cash equivalents in the balance sheet (i.e. cash in hand, cheques and bank balances), provided that they are available for use within three months. Cash is not subject to any restrictions on availability.

41. O T H E R D I S C LOS U R E S R EG A R D I N G T H E C A S H F LO W S TAT E M E N T No significant non-cash transactions took place for financing and investing purposes in the reporting year and the previous year.

Dividends of EUR 5,802 thousand (previous year: EUR 5,744 thousand) received in the reporting period were accounted for within cash flow from operating activities.

93

94

N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Notes

OT H E R D I S C LOS U R E S 42 . O T H E R D I S C LOS U R E S O N FINANCIAL INSTRUMENTS The following table lists the carrying amounts for financial assets and financial liabilities by measurement category for the reporting period:

C AR RY IN G AM O U N T S O F F I N A N C I A L I N S T R U M E N T S BY MEAS UREMEN T C ATEG ORY

LaR1

in EUR thousands

Carrying amount 29/2/2016

Amortized cost

AfS2

Cost

Fair value

FAFVPL/ FLFVPL3

FLAC4

No category

Fair value

Amortized cost

Fair value

Non-current assets Other financial investments Financial assets

23,906

0

23,906

0

0

/

0

0

0

0

0

0

/

0

127,336

127,336

0

0

/

/

/

914

914

0

0

/

/

/

Current assets Trade receivables Receivables from related parties

20,514

11,773

0

0

1,411

/

7,330

171,781

171,781

/

0

0

/

/

Financial liabilities

7,147

/

/

/

0

7,147

0

Liabilities towards related parties

5,500

/

/

/

0

5,500

0

18

/

/

/

0

18

0 0

Financial assets Cash and cash equivalents Non-current liabilities

Other financial liabilities Current liabilities

261

/

/

/

0

261

183,202

/

/

/

0

183,202

0

Liabilities towards related parties

32,384

/

/

/

0

32,384

0

Other financial liabilities

19,230

/

/

/

7,231

11,753

246

Total assets

344,451

311,804

23,906

0

1,411

/

7,330

Total liabilities

247,742

/

/

/

7,231

240,265

246

Financial liabilities Trade payables

1 2 3 4

Measurement category ‘Loans and receivables’ Measurement category ‘Available-for-sale financial assets’ Measurement category ‘Financial assets at fair value through profit or loss’ or ‘Financial liabilities at fair value through profit or loss’ Measurement category ‘Financial liabilities measured at amortized cost’

Notes : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

The following table shows the carrying amounts of financial assets and financial liabilities by measurement category for the comparative period:

C AR RY IN G AMO U N T S O F F I N A N C I A L I N S T R U M E N T S BY MEAS UREMEN T C ATEG ORY

LaR1

in EUR thousands

Carrying amount 28/2/2015

Amortized cost

AfS2

Cost

Fair value

FAFVPL/ FLFVPL3

FLAC4

No category

Fair value

Amortized cost

Fair value

Non-current assets Other financial investments Financial assets

23,931

4

23,927

0

0

/

0

0

0

0

0

0

/

0

138,889

138,889

0

0

/

/

/

67

67

0

0

/

/

/

Current assets Trade receivables Receivables from related parties Financial assets

13,197

3,357

0

0

3,313

/

6,527

Cash and cash equivalents

44,989

44,989

/

0

0

/

/

Financial liabilities

7,407

/

/

/

0

7,407

0

Liabilities towards related parties

5,500

/

/

/

0

5,500

0

18

/

/

/

0

18

0

248

/

/

/

0

248

0

327,348

/

/

/

0

327,348

0

39,777

/

/

/

0

39,777

0

6,035

/

/

/

2,686

1,754

1,595

Total assets

221,073

187,306

23,927

0

3,313

/

6,527

Total liabilities

386,333

/

/

/

2,686

382,052

1,595

Non-current liabilities

Other financial liabilities Current liabilities Financial liabilities Trade payables Liabilities towards related parties Other financial liabilities

1 2 3 4

Measurement category ‘Loans and receivables’ Measurement category ‘Available-for-sale financial assets’ Measurement category ‘Financial assets at fair value through profit or loss’ or ‘Financial liabilities at fair value through profit or loss’ Measurement category ‘Financial liabilities measured at amortized cost’

The measurement of financial assets and liabilities is made in accordance with the availability of relevant information on the basis of the three levels of the fair value hierarchy detailed in IFRS 7 and IFRS 13. For the first level, market prices for identical assets and liabilities can be observed directly on active markets. For the second level, the measurement is made on the basis of valuation models that are determined by parameters observed on the market. The use of valuation models that are not based on input factors that can be observed on

the market is covered by the third level. All derivative financial assets and liabilities are classed under level 2. Accepted financial models are used to determine the fair value of derivative financial instruments; as such, only input factors that can be observed (e.g. interest rates, exchange rates) are taken into account. For derivative financial instruments, fair value corresponds to the amount that the N ­ ordzucker Group would receive or have to pay for the transfer on the reporting date.

95

96

N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Notes

For cash and other current financial instruments, i.e. trade receivables, financial assets, derivative financial instruments, and other receivables and liabilities, the fair value and the carrying amount on each reporting date are the same.

The net gains or net losses by measurement category are as follows:

Within the income statement, the ‘Financial income’ or ‘Financial expenses’ item includes interest income of EUR 995 thousand (previous year: EUR 627 thousand) and interest expense of EUR 2,394 thousand (previous year: EUR 2,298 thousand) from financial instruments not measured at fair value through profit and loss.

In the reporting period and comparative period, there was no interest income from impaired financial assets.

NE T G AINS O R LO S S E S F RO M F I N A N C I A L I N S T R U M E N T S

1/3/2015 – 29/2/2016

/3/2014 – 28/2/2015

Loans and receivables (LaR)

1,311

– 336

Available-for-sale financial assets (AfS)

5,860

5,799

in EUR thousands

Financial assets/liabilities at fair value through profit or loss (FAFVPL/FLFVPL) Financial liabilities measured at amortized cost (FLAC) Total

4

8

– 2,394

– 2,298

4,781

3,173

Changes in the market value of derivative financial instruments are recognized under financial asset/liabilities at fair value through profit or loss. This is presented in the income statement under either ‘Financial income’ or ‘Financial expenses’.

Loans and receivables include impairments on receivables, interest from receivables and loans granted, as well as gains or losses from currency translation for receivables. Impairments on receivables and gains or losses resulting from currency translation for receivables are recognized in the income statement under ‘Other income’ or ‘Other expenses’. Interest from receivables and loans granted is presented under ‘Financial income’.

The available-for-sale financial assets include dividends, which are recognized in the income statement under ‘Financial income’ or ‘Financial expenses’.

Interest on loans received is recognized as financial liabilities measured at amortized cost. This is presented in the income statement under ‘Financial expenses’.

43. R I S K M A N AG E M E N T 43.1. General remarks The N ­ ordzucker Group has a comprehensive system in place throughout the company for the early identification and permanent monitoring of risk as well as for risk measurement and limitation. The integrated risk management system is used to identify risks and the appropriate steps fully and to include them in operational and strategic planning. Potential risks such as default and credit risks, commodity, liquidity, exchange rate and interest rate risks are assessed permanently as part of risk management, whereby appropriate steps are developed and implemented. Operating and strategic decision-making always takes risk aspects into account. The Group-wide reporting and controlling system ensures that all the responsible decision makers are continually informed.

By the nature of its business, the ­Nordzucker Group is exposed to default and credit risks, commodity, liquidity and exchange rate risks as well as interest rate risks. These are controlled by means of suitable risk management processes. The ­Nordzucker Group uses derivative financial instruments to hedge against interest and exchange rate fluctuations and to hedge costs of raw materials. The use of these instruments is governed by Group guidelines and restricted to the hedging of existing transactions or those which are sufficiently likely to take place. The guidelines define the individuals respon­ sible, the limits and reporting and stipulate a strict separation between trading and clearing. This transparent and functional manner of organizing risk management processes applies to all types of risk. ­ ordzucker has also installed an adequate reporting system in N line with the EU regulation EMIR, which came into effect on 12 March 2014. In accordance with the legal requirements of Sec. 20 paragraph 1 WpHG (German Securities Trading Act), the N ­ ordzucker Group had this system audited during the reporting period by a firm of German public auditors and was not notified of any objections.

Notes : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

43.2. Default risk Credit or default risk is the risk that business partners do not meet their contractual payment obligations, causing the ­Nordzucker Group to suffer a loss as a result. As part of credit risk management, business partners are subject to a credit scoring in order to reduce default risk. Identifiable default risks are accounted for by impairments, whereby the risk of default on receivables is mostly limited by trade credit insurance.

The ­Nordzucker Group does not see itself as exposed to a significant default risk from any individual counterparty. As the customer structure for the N ­ ordzucker Group is diverse,

there is only a limited concentration of credit risk. There is therefore no special monitoring and management on the basis of specific risk categories to avoid a concentration of risk.

The maximum default risk corresponds to the carrying amounts of the financial assets on the balance sheet at the relevant reporting date.

The following table shows total carrying amounts, the carrying amounts for financial assets which are neither overdue nor impaired and the age structure of financial assets which are not impaired but past due, for the financial assets:

AGE S T R U C T U RE O F F I N A N C I A L A S S E T S

in EUR thousands

Not impaired at the end of the reporting period and past due as follows:

Total carrying amount

Neither impaired nor past due at the end of the reporting period

Less than 30 days

Between 30 and 60 days

Between 61 and 90 days

Between 91 and 180 days

More than 180 days

23,906

23,906

0

0

0

0

0

As of 29/2/2016 Other financial investments Financial assets (excluding derivative financial instruments), receivables from related parties

19,919

19,919

0

0

0

0

0

Trade receivables

127,336

112,853

12,390

819

429

14

339

Total

171,161

156,678

12,390

819

429

14

339

23,931

23,931

0

0

0

0

0

9,372

9,372

0

0

0

0

0

As of 28/2/2015 Other financial investments Financial assets (excluding derivative financial instruments), receivables from related parties Trade receivables

138,889

125,664

10,987

390

489

721

383

Total

172,192

158,967

10,987

390

489

721

383

For the portion of the receivables portfolio which has neither been impaired nor is past due there is no indication as of the reporting date that ­Nordzucker Group’s debtors will not fulfil their payment obligations.

amount before impairments) of EUR 172,916 thousand (previous year: EUR 174,452 thousand). Impairments of EUR 296 thousand (previous year: EUR 1,656 thousand) were recognized in the reporting period.

Financial assets that are shown in the table above under ‘Financial investments’, ‘Financial assets (excluding derivative financial instruments), receivables from related parties’ or ‘Trade receivables’ have a gross carrying amount (i.e. carrying

The ­Nordzucker Group did not provide or receive financial assets as collateral either in the reporting period or the comparative period.

97

98

N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Notes

43.3. Liquidity risk Liquidity risk is the risk that the company cannot meet its payment obligations at the contractually agreed time. To ensure the N ­ ordzucker Group’s liquidity, the liquidity needs are monitored and planned centrally. Sufficient cash and short-term credit lines are available to meet all obligations when they are due.

The following table shows contractually agreed (undiscounted) interest and capital repayments – also categorized by remaining term – for the non-derivative financial liabilities and for derivative financial instruments.

PAY M E NT S FRO M F I N A N C I A L I N S T RU M E N T S BY RE M A I NIN G TERM

in EUR thousands

Carrying amount

Gross inflow/outflow

Remaining term of up to one year

Remaining term of 1 – 5 years

Remaining term of more than five years

As of 29/2/2016 Financial liabilities Trade payables Other financial liabilities, liabilities towards related parties Derivative financial liabilities Derivative financial assets Total

7,408

– 7,408

– 261

– 6,330

– 817

183,202

– 183,202

– 183,202

0

0

49,655

– 50,029

– 44,511

– 5,518

0

7,477

– 7,477

– 7,477

0

0

– 1,509

1,509

1,509

0

0

246,233

– 246,607

– 233,942

– 11,848

– 817

As of 28/2/2015 Financial liabilities Trade payables Other financial liabilities, liabilities towards related parties Derivative financial liabilities Derivative financial assets Total

7,655

– 7,655

– 245

– 6,397

– 1,013

327,348

– 327,348

– 327,348

0

0

47,049

– 47,693

– 42,175

– 5,518

0 0

4,281

– 4,281

– 4,281

0

– 3,892

3,892

3,892

0

0

382,441

– 383,085

– 370,157

– 11,915

– 1,013

The term to maturity analysis includes all instruments held for which payments have been contractually agreed as of the reporting date. Forecast payments on expected future liabilities are not included. Floating-rate interest payments on financial instruments are determined using the last interest rates set before the balance sheet date. Financial liabilities repayable at any time are categorized in accordance with remaining term according to their estimated repayment dates.

Notes : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

43.4. Market risks Market risks arise from potential changes in risk factors, which lead to fluctuations in market values or alterations in future cash flows. The relevant risk factors for the N ­ ordzucker Group are exchange rate and interest rate fluctuations, as well as changes in the price of commodities. a. Exchange rate risk Due to its business operations in different countries which are not part of the Eurozone, the ­Nordzucker Group is exposed to an exchange rate risk.

IFRS 7 requires the disclosure of a sensitivity analysis to illustrate the dimensions of exchange rate risks. The application of sensitivity analyses enables the calculation for this type of risk of the effects that a change of the given exchange rate on the reporting date would have on the net income for the period and on the equity of the N ­ ordzucker Group. The effects are determined by applying a hypothetical change of 10 per cent in the exchange rates to the amount of the relevant items in foreign currencies (the net risk position in the foreign currency) as of the reporting date. It is assumed that the exposure at the reporting date is representative of the whole reporting period.

The net risk position is adjusted for planned transactions within the next twelve months and for existing hedging instruments (even if no hedging relationship in accordance with IAS 39 exists).

Lithuania introduced the Euro in the comparative period.

Foreign currency positions in Danish Krone are only exposed to an insignificant exchange rate risk, as the country is part of the European Union’s exchange rate mechanism. The exchange rate risk from foreign currency positions in US Dollars is also insignificant as the amounts are minor and are hedged directly.

Furthermore, the ­Nordzucker Group hedges a large proportion of actual currency risks using the natural hedge approach and by using derivatives, so that the remaining net risk exposure is insignificant. b. Interest rate risk Due to its borrowing activities, the N ­ ordzucker Group is exposed to interest rate risk. Financing is arranged in various currency areas, although the most frequent currency is the Euro. Interest rate risks from financing activities denominated in Swedish Krone, Polish Zloty or Danish Krone are insignificant, as the amounts involved are minor.

In accordance with IFRS 7 interest rate risks are illustrated using sensitivity analyses. The sensitivity analysis determines the effect that a change in market interest rates on the reporting date would have on the result for the period and on equity.

In the reporting and comparative periods, no cash flow hedges were used to hedge the interest rate risk of floating-­ rate instruments, since these funds are scheduled to be repaid shortly and no further loans are to be taken out at floating rates of interest thereafter. In view of the remaining duration of the derivatives, a hypothetical change in the relevant interest rates for floating-rate instruments of +/– 50 basis points would therefore not have a significant effect in relation to the Group’s equity and net interest.

In terms of its investments, the N ­ ordzucker Group was faced by a new development across Europe in the financial year.

The new reserve policy of the European Central Bank and other central banks, entailing negative interest rates on banks’ reserve facilities, resulted in increasing pressure on the interest rates paid on the credit balances of corporate clients. In various countries, there have been isolated cases of banks trying to impose negative interest rates on company bank accounts to make up for their own costs. The ­Nordzucker Group reacted promptly to this development and has so far avoided significant charges by means of bilateral agreements with the banks. As the central banks are continuing to tighten their interest rate policies, pressure has not yet let up in this area, however. The N ­ ordzucker Group is therefore in constant contact with its banks in all countries, in order to prevent an adverse effect on consolidated net income in future as well by re-routing commercial business or spreading investments. c. Commodity risk As a result of its business activities, the N ­ ordzucker Group is exposed to various price risks for commodities. These primarily relate to world market prices for sugar, energy sources and the related CO2 emissions. d. Hedging activities The N ­ ordzucker Group uses derivative financial instruments solely to hedge interest rate and exchange rate risks as well as price risks for raw materials.

As a rule, the existing interest rate risk for floating-rate loans is reduced by means of interest rate derivatives. All interest rate derivatives are designated as cash flow hedges in ­hedging relationships under IAS 39. As of the reporting date, the ­Nordzucker Group had not taken out any interest rate derivatives, since based on its financial planning it could not identify any exposure to interest rate risk as of this date.

99

10 0

N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Notes

It is generally assumed that the hedged transactions will actually take place. If a hedging transaction is cancelled, the amounts accumulated in other comprehensive income during the term of the transaction are reversed when the hedged item is recognized in profit and loss or if it no longer takes place.

In addition to the natural hedge approach for Poland and Sweden, the gross positions are hedged to reduce exchange rate risk. Exchange rate risks are also hedged by means of appropriate derivatives such as currency futures – including for periods of less than a year.

As of the reporting date, the Group holds derivative financial instruments aimed at hedging currency risks and price risks for sugar and energy (oil). Almost all of the derivative financial instruments mature within one year.

A sensitivity analysis for the market values in the balance sheet would not produce a significant effect in relation to the Group’s equity and earnings.

The effective portion of changes in the market value of deriva­ tive financial instruments integrated in cash flow hedges is recognized in other comprehensive income (i.e. in the statement of comprehensive income) with no effect on profit and loss. In the reporting period, EUR – 345 thousand (previous year: EUR – 400 thousand) was recognized in the statement of comprehensive income.

The Group does not measure the derivatives itself. The fair value determination is carried out by the contracting banks using accepted financial methods and observable input ­factors (level 2 of the fair value hierarchy).

4 4. R E L AT E D PA R T Y T R A N S AC T I O N S For the N ­ ordzucker Group, related parties within the meaning of IAS 24 are individuals and companies which control the Group or exercise significant influence over it or are controlled or significantly influenced by the Group. The first category includes the active members of the Executive Board and Supervisory Board of ­Nordzucker AG and its majority shareholder ­Nordzucker Holding AG. In addition, the sub­ sidiaries, parent company, joint ventures and associates of the ­Nordzucker Group are defined as related parties.

Receivables from and liabilities towards related parties are based on arm’s length transactions.

The following commercial relationships existed with related parties in addition to those existing with fully consolidated subsidiaries:

REL ATED PAR T Y TRAN SACTION S

in EUR thousands

29/2/2016

28/2/2015

914

67

37,884

45,277

Balance sheet Receivables from related parties Liabilities towards related parties Income statement Services provided to related parties

508

632

Net financial result

– 85

– 470

In the reporting period, receivables from related parties of EUR 779 thousand were owed mainly by August Töpfer Zucker­handelsgesellschaft mbH & Co. KG, with a further EUR 92 thousand owed by NP Sweet A/S and, in the comparative period, mainly by NP Sweet A/S, Copenhagen, with EUR 41 thousand.

Of the liabilities towards related parties in the reporting period, EUR 10,234 thousand was owed to N ­ ordzucker H ­ olding AG, Braunschweig, EUR 3,427 thousand to S­ WEETGREDIENTS GmbH & Co. KG, Nordstemmen, EUR 6,062 thousand to MEF Melasse-Extraktion Frellstedt GmbH, Frellstedt, and EUR 17,055 thousand to Union Zucker Südhannover GmbH, Nordstemmen. Of the liabilities towards related parties in the comparative period, EUR 15,467 thousand was owed to ­Nordzucker Holding AG, Braunschweig, EUR 3,416 thousand to SWEETGREDIENTS GmbH & Co. KG, Nordstemmen, EUR 6,162 thousand to MEF Melasse-Extraktion Frellstedt GmbH, Frellstedt, and EUR 19,510 thousand to Union Zucker Südhannover GmbH, Nordstemmen. ­ ordzucker Holding AG and Union Zucker Südhannover N GmbH are shareholders of N ­ ordzucker AG; the liabilities relate to current accounts. The remaining liabilities relate to other related parties and result largely from loans and trade in goods and services.

The provision of services for related companies primarily concerns NP Sweet A/S, Copenhagen, and the net financial result is from associated companies and joint ventures.

Notes : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

45. CO N T I N G E N T L I A B I L I T I E S

47. A U D I TO R S’ F E E S

As of the reporting dates in the reporting year and the previous year, there were no contingent liabilities towards third parties outside the Group.

Companies in the N ­ ordzucker Group purchased services for EUR 388 thousand (previous year: EUR 331 thousand) from Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Stuttgart, in connection with the statutory audit of financial statements for the ­Nordzucker Group and ­Nordzucker AG, as well as tax advisory services for EUR 27 thousand (previous year: EUR 25 thousand) and other services for EUR 165 thousand (previous year: EUR 327 thousand).

4 6 . O T H E R F I N A N C I A L O B L I G AT I O N S The ­Nordzucker Group’s other financial obligations are made up as follows:

48. S U P E R V I S O R Y B OA R D A N D OT HE R FINAN C I A L O B L I G AT I O N S

in EUR thousands

E X EC U T I V E B OA R D 29/2/2016

28/2/2015

11,852

8,302

Purchase commitments for property, plant and equipment Purchase commitments for intangible assets Obligations from finance leases Obligations from operating leases Total

690

212

2,639

3,029

9,478

10,978

24,659

22,521

As of the reporting date, total future payment obligations from rental and lease contracts are made up as follows:

in EUR thousands

Remaining term of up to one year

Remaining term of 1 – 5 years

Remaining term of more than five years

Total

Future payments for finance leases

391

1,296

952

2,639

4,336

5,142

0

9,478

As of the reporting date, future payments under finance leases are as follows:

Principal repayments

Hans-Christian Koehler farmer, Barum, Chairman Helmut Meyer (until 16 July 2015) farmer, Betheln, Deputy Chairman (until 16 July 2015)

Helmut Bleckwenn farmer, Garmissen Gerhard Borchert farmer, Brome Hans Jochen Bosse farmer, Ohrum Dr Karl-Heinz Engel former Managing Director of Hochwald Foods GmbH, Riol Joachim Engelke (from 17 July 2015) farmer, Giesen OT Hasede

FINAN CE L E AS E S

in EUR thousands

Shareholder representatives

Jochen Johannes Juister farmer, Nordhastedt, Deputy Chairman (from 17 July 2015)

R E NTAL AND L E A S I N G AG RE E M E N T S

Future payments for operating leases

In the reporting period, the Supervisory Board was made up as follows:

Remaining term of up to one year

Remaining term of 1 – 5 years

Remaining term of more than five years

Total

261

931

817

2,009

Interest

130

365

135

630

Payment

391

1,296

952

2,639

Michael Gerlif management consultant, Cologne Dr Clemens Große Frie (until 16 July 2015) CEO of AGRAVIS RAIFFEISEN AG, Telgte Friedrich Christoph Heins (from 17 July 2015) farmer, Uehrde

101

102

N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Notes

Dr Harald Isermeyer farmer, Vordorf

The members of the Executive Board in the reporting period were as follows:

Dr Hans-Theo Jachmann agricultural engineer, Limeshain

Hartwig Fuchs Hamburg, Chairman of the Management Board, Chief Executive Officer, Chief Marketing Officer (from 25 November 2015)

Rainer Knackstedt farmer, Dedeleben Matts Eskil Rosendahl consultant, Svartsjö, Sweden Grit Worsch Executive Board member of Volksbank ­Osterburg-Lüchow-Dannenberg eG, Woltersdorf Employee representatives Dieter Woischke electrician, Algermissen, Deputy Chairman Ulf Gabriel electrician, Banteln Gerd von Glowczewski metalworker, Schladen Olaf Joern mechatronics engineer, Uelzen Sigrun Krussmann laboratory technician, Seelze Marie Lohel energy electronics engineer, Magdeburg Marina Strootmann industrial clerk, Braunschweig, Chair of the Works Council, Nordzucker AG

Axel Aumüller Braunschweig, Chief Operating Officer Dr Lars Gorissen Braunschweig, Chief Agriculture Officer Mats Liljestam (until 25 November 2015) Höllviken, Sweden, Chief Marketing Officer Dr Michael Noth Braunschweig, Chief Financial Officer

49. R E M U N E R AT I O N R E P O R T In the following section the principles of remuneration for members of the Executive Board and Supervisory Board of ­Nordzucker AG are described and the amount of their remuneration disclosed, together with disclosures on shares held by members of the Executive Board and Supervisory Board.

49.1. Remuneration of the Executive Board The structure, amount and timing of Executive Board remuneration are determined and regularly reviewed by the full Supervisory Board following a proposal from the Human Resources Committee of the Supervisory Board.

The criteria for determining the remuneration of individual Executive Board members are their responsibilities, personal performance, the economic situation, business success, future prospects, sustainable corporate development and also the extent to which the remuneration is generally accepted considering the sphere of comparison and remuneration structures applicable elsewhere in the company.

The total remuneration of Executive Board members includes monetary payments, benefit commitments and other commitments such as the provision of a company car. The monetary remuneration components consist of a fixed annual salary, paid in twelve equal monthly instalments, as well as an earnings and performance-related payment. The variable bonus can be up to a maximum of 50 per cent of total compensation (total compensation is made up of fixed annual salary and the variable bonus). The structure of Executive Board remuneration is aligned with the company’s sustainable development, as recommended by the German Corporate

Notes : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

Governance Code (GCGC). In consequence, 45 per cent of variable remuneration is paid as a short-term incentive (STI) linked to the achievement of targets for the given financial year. The remaining 55 per cent is paid as a long-term incentive (LTI), calculated on the basis of average performance against targets for the past three years.

Benefit commitments made to Executive Board members in the event that their appointment to Executive Board ends prematurely are limited to the value of the remaining term of their contract.

This results in the following remuneration for individual members of the Executive Board for the 2014/2015 comparative period and for the 2015/2016 reporting period:

HAR T W IG FUC H S CH AIR M AN O F T H E E X E C U T I V E BOA R D SI NC E 1 F E BRUA RY 2 0 1 0

2014/15

2015/16

2015/16 Minimum

2015/16 Maximum

2014/15 Allocation

2015/16 Allocation

575,000

575,000

575,000

575,000

575,000

575,000

16,550

17,643

17,643

17,643

16,550

17,643

591,550

592,643

592,643

592,643

591,550

592,643

51,502

108,793

0

258,750

229,458

51,502

LTI (period from 2011/12 to 2013/14)

0

0

0

0

307,517

0

LTI (period from 2012/13 to 2014/15)

219,767

0

0

0

0

219,767

LTI (period from 2013/14 to 2015/16)

0

157,178

116,377

219,767

0

0

0

0

0

0

0

0

271,269

265,971

116,377

478,517

536,975

271,269

EUR Fixed remuneration Fringe benefits Total One-year variable remuneration Long-term variable remuneration

Miscellaneous Total Retirement benefit expenses Total remuneration

160,000

160,000

160,000

160,000

160,000

160,000

1,022,819

1,018,614

869,020

1,231,160

1,288,525

1,023,912

AX E L AUM ĂœL L E R M EM B ER OF T H E E X E C UT I V E BOA R D SI NC E 9 N OV E MB E R 2 0 0 9

2014/15

2015/16

2015/16 Minimum

2015/16 Maximum

2014/15 Allocation

2015/16 Allocation

400,000

400,000

400,000

400,000

400,000

400,000

18,580

18,615

18,615

18,615

18,580

18,615

418,580

418,615

418,615

418,615

418,580

418,615

35,827

75,682

0

180,000

151,641

35,827

LTI (period from 2011/12 to 2013/14)

0

0

0

0

203,229

0

LTI (period from 2012/13 to 2014/15)

152,881

0

0

0

0

152,881

LTI (period from 2013/14 to 2015/16)

0

109,342

80,959

152,882

0

0

0

0

0

0

0

0

188,708

185,024

80,959

332,882

354,870

188,708

EUR Fixed remuneration Fringe benefits Total One-year variable remuneration Long-term variable remuneration

Miscellaneous Total Retirement benefit expenses Total remuneration

125,000

125,000

125,000

125,000

125,000

125,000

732,288

728,639

624,574

876,497

898,450

732,323

103

10 4

N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Notes

DR L AR S GO R ISSE N M EM B ER O F T H E EXE C U T I V E BOA R D SI NC E 1 M A RC H 20 1 4

2014/15

2015/16

2015/16 Minimum

2015/16 Maximum

2014/15 Allocation

2015/16 Allocation

325,000

350,000

350,000

350,000

325,000

350,000

15,604

15,287

15,287

15,287

15,604

15,287

340,604

365,287

365,287

365,287

340,604

365,287

29,110

66,222

0

157,500

0

29,110

LTI (period from 2011/12 to 2013/14)

0

0

0

0

0

0

LTI (period from 2012/13 to 2014/15)

124,216

0

0

0

0

124,216

LTI (period from 2013/14 to 2015/16)

0

95,674

70,838

133,771

0

0

0

0

0

0

0

0

153,326

161,896

70,838

291,271

0

153,326

EUR Fixed remuneration Fringe benefits Total One-year variable remuneration Long-term variable remuneration

Miscellaneous Total Retirement benefit expenses

125,000

125,000

125,000

125,000

125,000

125,000

618,930

652,183

561,125

781,558

465,604

643,613

2014/15

2015/16

2015/16 Minimum

2015/16 Maximum

2014/15 Allocation

2015/16 Allocation

400,000

400,000

400,000

400,000

400,000

400,000

17,224

16,796

16,796

16,796

17,224

16,796

417,224

416,796

416,796

416,796

417,224

416,796

35,827

75,682

0

180,000

151,641

35,827

LTI (period from 2011/12 to 2013/14)

0

0

0

0

203,229

0

LTI (period from 2012/13 to 2014/15)

152,881

0

0

0

0

152,881

LTI (period from 2013/14 to 2015/16)

0

109,342

80,959

152,882

0

0

0

0

0

0

0

0

188,708

185,024

80,959

332,882

354,870

188,708

Total remuneration

DR M IC HAE L N OT H M EM B ER O F T H E EXE C U T I V E BOA R D SI NC E 1 6 AU G US T 2 0 0 9

EUR Fixed remuneration Fringe benefits Total One-year variable remuneration Long-term variable remuneration

Miscellaneous Total Retirement benefit expenses Total remuneration

125,000

125,000

125,000

125,000

125,000

125,000

730,932

726,820

622,755

874,678

897,094

730,504

Notes : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

M AT S L IL JE S TA M M EM B ER OF T H E E X E C UT I V E BOA R D U N T I L 2 5 N OV EMB E R 2 0 1 5

2014/15

2015/16

2015/16 Minimum

2015/16 Maximum

2014/15 Allocation

2015/16 Allocation

400,000

400,000

400,000

400,000

400,000

400,000

1,472

2,601

2,601

2,601

1,472

2,601

401,472

402,601

402,601

402,601

401,472

402,601

35,827

35,827

0

180,000

139,670

35,827

LTI (period from 2011/12 to 2013/14)

0

0

0

0

187,184

0

LTI (period from 2012/13 to 2014/15)

152,881

0

0

0

0

152,881

LTI (period from 2013/14 to 2015/16)

0

95,186

80,959

152,882

0

0

0

0

0

0

0

0

188,708

131,013

80,959

332,882

326,854

188,708

EUR Fixed remuneration Fringe benefits Total One-year variable remuneration Long-term variable remuneration

Miscellaneous Total Retirement benefit expenses

125,000

125,000

125,000

125,000

125,000

125,000

Total remuneration

715,180

658,614

608,560

860,483

853,326

716,309

The members of the Executive Board are assured pension commitments in the form of defined benefit commitments and defined contribution commitments.

Former Executive Board members received pension payments of EUR 802 thousand (previous year: EUR 791 thousand). ­Nordzucker AG recognized provisions of EUR 10,102 thousand (previous year: EUR 10,708 thousand) for pension commitments to former Executive Board members.

In the reporting and comparative period, members of the Executive Board received neither loans nor advances from the company.

The above tables on Executive Board remuneration correspond to the tables recommended in the German Corporate Governance Code as of the last financial year (Recommendation 4.2.5 of the GCGC in conjunction with the sample tables).

The first column shows the Executive Board remuneration granted in the 2014/2015 comparative period. This remunera­ tion is broken down into (i) fixed remuneration, (ii) fringe benefits (such as the provision of company cars), (iii) one-year variable remuneration, (iv) long-term variable remuneration and (v) retirement benefit expenses.

The second column indicates the Executive Board remuneration for the 2015/2016 reporting year, which is broken down in the same way.

The third and fourth columns present the minimum and maximum Executive Board remuneration attainable for the 2015/2016 reporting period. In respect of the fixed remunera­

tion, the fringe benefits and the retirement benefit expenses, the minimum and maximum remuneration, as well as the actual remuneration granted, are identical. In respect of the one-year variable remuneration, the minimum amount is zero.

In respect of the long-term variable remuneration, the minimum amount has to be higher than zero as partial amounts have already been earned in the previous two financial years, namely 2013/2014 and 2014/2015.

The fifth column shows the actual allocation in the 2014/2015 comparative year and the sixth column shows the actual allocation in the 2015/2016 reporting period. Variable remuneration in particular is paid out in the following financial year (i.e. the variable remuneration for the 2014/2015 comparative period is paid out in the 2015/2016 reporting year. As a result, the amounts shown in the fifth (and sixth) columns deviate from those shown in the first (and second) columns.

49.2. Remuneration of the Supervisory Board The remuneration of the Supervisory Board is based on the size of the company, the duties and responsibilities of the members of the Supervisory Board and the economic situation of the company. The remuneration includes a dividend-related component and an attendance fee, in addition to a fixed payment. The Chairman and Deputy Chairman of the Supervisory Board and the Chairmen of committees as well as those participating in them receive additional remuneration (with the exception of the Nomination Committee).

The remuneration of the Supervisory Board is defined in Sec. 14 of the Articles of Association of ­Nordzucker AG.

10 5

10 6

N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Notes

In accordance with these rules, members of the Supervisory Board receive a fixed salary of EUR 18,000 and a dividend-­ related payment of EUR 90 for every EUR 0.01 of dividend paid out per share on average over the past three years. Subject to approval at the Annual General Meeting, the dividend for the 2015/2016 reporting period will be EUR 0.10 per share (2014/2015 reporting period: EUR 0.10; 2013/2014 reporting period: EUR 1.30). The amount of variable remuneration is limited to the amount of fixed salary. The Chairman of the Supervisory Board receives 2.5 times the total of fixed and variable remuneration for an ordinary member, while the Deputies and the Chairman of the Committee each receive

1.4 times the remuneration of an ordinary member, and committee members receive 1.2 times the remuneration of an ordinary member. If a member of the Supervisory Board occupies more than one of these positions, the increased rate of remuneration only applies once. In addition, every member of the Supervisory Board receives an attendance fee of EUR 300 for attending each meeting of the Supervisory Board and its committees. A maximum of two meetings per day can be remunerated.

Subject to the approval of the dividend proposal at the Annual General Meeting, the following payments will be made for the 2015/2016 reporting period:

R E M UNE R AT IO N O F S U P E RV I S O RY BOA RD M E M B E R S 2 01 5 /2 0 1 6

Fixed remuneration*

Variable remuneration*

Pro rata

Total compensation

Attendance fee*

Total

Total pre­vious year

Hans-Christian Koehler

18,000

4,500

22,500

Dieter Woischke

18,000

4,500

22,500

2.5

366/366

56,250

6,600

62,850

73,275

1.4

366/366

31,500

4,200

35,700

Helmut Meyer (1/3 – 16/7/2015)

41,682

18,000

4,500

Michael Gerlif

18,000

4,500

22,500

1.4

138/366

11,877

1,500

13,377

39,882

22,500

1.4

366/366

31,500

5,400

36,900

Dr Harald Isermeyer

18,000

39,384

4,500

22,500

1.2

366/366

27,000

6,300

33,300

Jochen Johannes Juister (1/3 – 16/7/2015)

36,756

Jochen Johannes Juister (16/7/2015 – 29/2/2016)

18,000

4,500

22,500

1.2

138/366

10,180

2,400

12,580

37,056

Marina Strootmann

18,000

4,500

22,500

1.4

228/366

19,623

2,700

22,323

18,000

4,500

22,500

1.2

366/366

27,000

3,600

30,600

36,156

Ulf Gabriel

18,000

4,500

22,500

1.2

366/366

27,000

3,900

30,900

35,856

Sigrun Krussmann

18,000

4,500

22,500

1.2

366/366

27,000

3,900

30,900

35,556

Hans Jochen Bosse

18,000

4,500

22,500

1.2

366/366

27,000

3,600

30,600

33,258

Matts Eskil Rosendahl

18,000

4,500

22,500

1.0

366/366

22,500

2,100

24,600

31,128

Gerhard Borchert

18,000

4,500

22,500

1.0

366/366

22,500

3,000

25,500

29,430

Dr Hans Theo Jachmann

18,000

4,500

22,500

1.0

366/366

22,500

3,000

25,500

29,430

Rainer Knackstedt

18,000

4,500

22,500

1.0

366/366

22,500

1,800

24,300

29,130

Gerd von Glowczewski

18,000

4,500

22,500

1.0

366/366

22,500

1,500

24,000

29,130

Dr Karl-Heinz Engel

18,000

4,500

22,500

1.0

366/366

22,500

1,800

24,300

29,130

Olaf Joern

18,000

4,500

22,500

1.0

366/366

22,500

2,100

24,600

29,130

Marie Lohel

18,000

4,500

22,500

1.0

366/366

22,500

2,100

24,600

28,830

Dr Clemens Große Frie (1/3 – 16/7/2015)

18,000

4,500

22,500

1.0

138/366

8,484

300

8,784

28,530

Helmut Bleckwenn

18,000

4,500

22,500

1.0

366/366

22,500

1,800

24,300

28,530

Grit Worsch (1/3 – 16/7/2015)

18,000

4,500

22,500

1.0

138/366

8,484

900

9,384

18,238

Grit Worsch (17/7/2015 – 29/2/2016)

18,000

4,500

22,500

1.2

228/366

16,820

1,200

18,020

Joachim Engelke (17/7/2015 – 29/2/2016)

18,000

4,500

22,500

1.0

228/366

14,016

1,200

15,216

Friedrich Christoph Heins (17/7/2015 – 29/2/2016)

18,000

4,500

22,500

1.0

228/366

EUR

Total Factor

Total * Does not include the VAT paid on behalf of Supervisory Board members for their work.

/

14,016

900

14,916

/

560,250

67,800

628,050

719,496

Notes : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

Furthermore, the members of the Supervisory Board are reimbursed for all out-of-pocket expenses incurred in the exercise of their duties as well as for the VAT payable on their remuneration and on the reimbursed expenses. The total amount of these reimbursements, including VAT, was EUR 37 thousand (previous year: EUR 21 thousand).

In the reporting and comparative period, members of the Supervisory Board received neither loans nor advances from the company.

49.3. S hares held by members of the Executive Board and Supervisory Board Members of the Executive Board hold no significant stocks of shares.

As of 29 February 2016, members of the Supervisory Board and related parties held under 1 per cent of the issued share capital of N ­ ordzucker AG. The shares bear no relation to the remuneration of the Supervisory Board.

49.4. Miscellaneous Board members of N ­ ordzucker AG are indemnified by ­Nordzucker AG against third-party liability as allowed by law.

For this purpose, the company has taken out D&O insurance for members of the Boards of ­Nordzucker AG. The insurance policy is taken out or renewed annually and covers the personal liability of Board members for claims for damages arising in the course of their work. It includes an excess in accordance with Sec. 3.8 of the German Corporate Governance Code.

50. D I V I D E N D P R O P OS A L The dividends that can be distributed to shareholders are defined in the German Stock Corporation Act (AktG) as the net balance sheet profit as determined under German commercial law and disclosed in the annual financial statements of ­Nordzucker AG. The annual financial statements of ­Nordzucker AG for the 2015/2016 reporting period show a net distributable profit of EUR 34,870,956.23. The Executive Board proposes to use this net distributable profit to pay a dividend for the 2015/2016 reporting period (EUR 0.10 per share with dividend entitlement).

51. E VENTS AF TER THE REPORTING PERIOD In February 2016 ­Nordzucker AG made use of the agreed renewal option and applied for a two-year extension of the syndicated loan until 9 March 2021. Nordzucker AG ­­ took this opportunity to reorganize its banking consortium. Two banks left the syndicate as a result and one other will only remain for the original term of the syndicated loan. Until 2019 the Group can therefore draw on a syndicated loan of EUR 344.5 million (reporting period: EUR 400.0 million) and from 2019 until March 2021 on a loan of EUR 312.6 million. The ABS programme launched last year with a volume of up to EUR 100.0 million, available liquidity and the loan extension until well after the end of the sugar market regime ensure that ­Nordzucker still has very solid financial structure.

Braunschweig, Germany, 22 April 2016 The Executive Board

Hartwig Fuchs

Axel Aumüller

Dr Lars Gorissen

Dr Michael Noth

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LIST OF INVESTMENTS ­Nordzucker AG, Braunschweig, as of 29 February 2016

Shareholding direct Shortened form

%

indirect %

via subsidiaries

NS AS

100 %

NSH AS

Titoconcerto AB (Malmö, Sweden)

Titoconcerto

100 %

NSH AS

Nordic Sugar AB (Malmö, Sweden)

NS AB

100 %

Titoconcerto

Consolidated subsidiaries Norddeutsche Flüssigzucker GmbH & Co. KG (Braunschweig, Germany) NORDZUCKER Spezial GmbH (Braunschweig, Germany) NORDZUCKER GmbH & Co. KG (Braunschweig, Germany) ­Nordzucker Services GmbH & Co. KG (Braunschweig, Germany) ­Nordzucker Polska S.A. (Opalenica, Poland) Považský cukor a.s. (Trencianska Tepla, Slovakia) HZN Solutions Zrt i.L. (Hatvan, Hungary) Nordic Sugar Holding A/S (Copenhagen, Denmark) Nordic Sugar A/S (Copenhagen, Denmark)

Nordic Sugar Services AB (Malmö, Sweden) AB Nordic Sugar Kėdainiai (Kėdainiai, Lithuania) Nordic Sugar Oy (Kantvik, Finland) Sucros Oy (Säkylä, Finland) Suomen Sokeri Oy (Kantvik, Finland) ­Nordzucker Ireland Limited (Dublin, Ireland)

NFZ KG

70 %

NZ SPEZIAL

100 %

NZ KG

100 %

NZ Services KG

100 %

NZ Polska

99.87 %

Povazsky 96.798 % HZN

99.89 %

NSH AS

100 %

NSS AB

100 %

NS AB

NS Kėdainiai

70.6 %

NS AS

NS Oy

100 %

NS AS

Sucros Oy

80 %

NS Oy

80 %

Sucros Oy

MEF

50 %

NZ KG

NZR

50 %

NZ KG

NP Sweet

50 %

NSH AS

Suomen Oy NZ Ireland

100 %

Joint ventures accounted for using the equity method MEF Melasse-Extraktion Frellstedt GmbH (Frellstedt, Germany) Norddeutsche Zucker-Raffinerie Gesellschaft mit beschränkter Haftung (Frellstedt, Germany) NP Sweet A/S (Copenhagen, Denmark) Eurosugar S.A.S. (Paris, France)

ES

50 %

Associates accounted for using the equity method August Töpfer Zuckerhandelsgesellschaft mbH & Co. KG (Hamburg, Germany)

ATZU

25 %

Non-consolidated subsidiaries NZ Dritte Vermögensverwaltungsgesellschaft mbH (Braunschweig, Germany) Norddeutsche Flüssigzucker Verwaltungs-GmbH (Braunschweig, Germany) NORDZUCKER Verwaltungs-GmbH (Braunschweig, Germany)

NZ 3. VVG

100 %

NFZ GmbH

70 %

NZ GmbH

100 %

NZ KG

SG KG

100 %

NZ SPEZIAL

SWEETGREDIENTS Verwaltungs GmbH (Nordstemmen, Germany)

SG GmbH

100 %

SG KG

NZ Erste Vermögensverwaltungsgesellschaft mbH (Braunschweig, Germany)

NZ 1. VVG

100 %

NZ 2. VVG

100 %

NZ Services GmbH

100 %

NS SIA

100 %

NS AS

NS UAB

100 %

NS AS

IW AS

50 %

NS AS

ATV

25 %

NS AS

SWEETGREDIENTS GmbH & Co. KG (Nordstemmen, Germany)

NZ Zweite Vermögensverwaltungsgesellschaft mbH (Braunschweig, Germany) ­ ordzucker Services Verwaltungs-GmbH N (Braunschweig, Germany) Nordic Sugar SIA (Riga, Latvia) Nordic Sugar UAB i.L. (Vilnius, Lithuania) Joint ventures not accounted for using the equity method ­Nordzucker Bioerdgas Verwaltungs-GmbH (Braunschweig, Germany) ­Nordzucker Bioerdgas GmbH & Co. KG (Braunschweig, Germany) Ingolf Wesenberg & Co. AS (Oslo, Norway)

NZ BEG GmbH

50 %

NZ BEG KG

50 %

Associates not accounted for using the equity method August Töpfer Verwaltungs GmbH (Hamburg, Germany) Other non-consolidated investments Tereos TTD, a.s. (Dobrovice, Czech Republic)

TTD

35.38 %

Tropical Cubes Co. Ltd. (Morcellement St André, Mauritius)

TC

12.5 %

ATZU

C.I. Food Colombia S.A.S. (Yumbo, Colombia)

CIF

12.5 %

ATZU

HST 16.668 %

ATZU

H.S.T. Hamburg Sugar Terminal GmbH & Co. KG (Hamburg, Germany) Verwaltungsgesellschaft H.S.T. Hamburg Sugar Terminal mbH (Hamburg, Germany) SBI Jordberga AB (Linköping, Sweden)

VHST 16.668 % SBI

5 %

ATZU NS AB

Notes : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

AU D I T O P I N I O N ‘We have audited the consolidated financial statements prepared by Nordzucker AG, Braunschweig, comprising the balance sheet, the income statement, statement of consolidated income, the notes to the consolidated financial statements, the cash flow statement and the statement of changes in shareholder’s equity, together with the group management report for the fiscal year from 1 March 2015 to 29 February 2016. The preparation of the consolidated financial statements and the group management report in accordance with IFRS as adopted by the EU, and the additional requirements of German commercial law pursuant to Sec. 315a (1) HGB are the responsibility of the parent company’s management. Our responsibility is to express an opinion on the consolidated financial statements and on the group management report based on our audit.

We conducted our audit of the consolidated financial statements in accordance with Sec. 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the determination of entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and the group management report. We believe that our audit provides a reasonable basis for our opinion.

Our audit has not led to any reservations.

In our opinion, based on the findings of our audit, the consoli­ dated financial statements comply with IFRSs as adopted by the EU, the additional requirements of German commercial law pursuant to Sec. 315a (1) HGB and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The group management report is consistent with the consolidated financial statements and as a whole provides a suitable view of the Group’s position and suitably presents the opportunities and risks of future development.’

Hannover, 28 April 2016 Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft

Dr Janze

Weiß

Wirtschaftsprüfer Wirtschaftsprüfer [German Public Auditor] [German Public Auditor]

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足N O R D Z U C K E R A N N U A L R E P O R T 2015/2016 : Further information

Photo: Tommi Haikonen

Further information : ­N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

FURTHER INFORMATION

112 � Corporate Governance Report 115 � Statement of compliance with German Corporate Governance Code 116 � Report by the Supervisory Board 122 � Glossary 126 � Financial Calendar

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C O R P O R AT E GOVERNANCE REPORT FOR THE FINANCIAL YEAR 2015/2016 – and declaration on corporate governance in accordance with Sec. 289a paragraph 4 German Commercial Code (HGB) –

GENER AL Corporate governance covers the system of managing and monitoring a company, including its organizational structure, its corporate policies and guidelines as well as the internal and external mechanisms of control and monitoring. ­Nordzucker AG attaches great importance to well-structured, authentic corporate governance as it ensures that the management of the company is carried out in the spirit of longterm value creation. It fosters the confidence of shareholders, financial markets, business partners, staff and the general public in the management and monitoring of the ­Nordzucker Group.

Corporate governance is the foundation for the decision-making and controlling processes at the N ­ ordzucker Group. ­Nordzucker’s activities are carried out in accordance with clearly defined guidelines. These guidelines ensure that the company’s actions are systematically aligned with the interests and expectations of shareholders, customers, business partners and staff.

The actions of all our staff are aimed at earning an appropriate and sustainable profit, continually generating growth and increasing market share. Continuous improvement of all business processes by competent, well-managed staff earning performance-related pay secures the existence and the systematic long-term development of the company in an ever-changing competitive environment.

D UA L G OV E R N A N C E S Y S T E M ­ ordzucker AG is based in Braunschweig and is subject to N German stock corporation law. As a fundamental principle it provides for a dual system of governance, in which the Execu­ tive Board is responsible for managing the company and the Supervisory Board is responsible for advising and monitoring the Executive Board. Both boards and their members have their own authority and work together closely and on the basis of mutual trust in the interests of the company.

CO M P OS I T I O N A N D W O R K I N G P R AC T I C E S O F T H E E X EC U T I V E B OA R D The Executive Board of ­Nordzucker AG currently consists of four members.

The Executive Board of ­Nordzucker AG is responsible for determining company policy. It sets corporate strategy, plans and approves company budgets, decides on the allocation of resources and monitors the performance of the company and the Group. It is also responsible for preparing the interim and annual financial statements for N ­ ordzucker AG and the consoli­dated financial statements. The Executive Board is collectively responsible for managing the business of ­Nordzucker AG. On 16 July 2015 the Supervisory Board decided in accor­ dance with Sec. 111 paragraph 5 German Stock Corporation Act (AktG) to set a target of 0 per cent for the proportion of women on the Executive Board, with a deadline of 30 June 2017 for reaching this figure.

The Executive Board, with the approval of the Supervisory Board, has adopted internal rules of procedure.

The target adopted by the Executive Board in accordance with Sec. 76 paragraph 4 AktG for the proportion of women on the first management level below the Executive Board is 10 per cent and for the second management level 20 per cent, both with a deadline of 30 June 2017.

Further information : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

CO M P OS I T I O N A N D W O R K I N G P R AC T I C E S O F T H E S U P E R V I S O R Y B OA R D The Supervisory Board of ­Nordzucker AG has 21 members.

Two-thirds of the Supervisory Board members represent the shareholders and one-third represents the workforce. The Supervisory Board monitors the Executive Board and advises it on the management of the company. The Supervisory Board regularly discusses the course of business and company planning as well as corporate strategy and its implementation.

It examines and approves the annual financial statements of ­Nordzucker AG and the consolidated financial statements for the Group, giving due regard to the auditors’ report and the results of the examination by the Audit and Finance Committee. Major Executive Board decisions are subject to its approval.

In order to reflect recommendation 5.4.1 of the German ­Corporate Governance Code and Sec. 111 paragraph 5 AktG, the Supervisory Board decided on 16 July 2015 to take the following elements relating to its composition into account in particular:

M A I N CO R P O R AT E G OV E R N A N C E P R AC T I C E S In addition to the principles of the German Corporate ­Governance Code, the sustainable and responsible gover­ nance of the ­Nordzucker Group is based on the following core principles: > The four company values, responsibility, dedication, courage and appreciation, form the basis of the company culture at the ­Nordzucker Group; > Building on these, the Code of Conduct provides general guidance for the employees of the ­Nordzucker Group and those sales representatives, consultants and other business partners who act on its behalf; > Internal rules, guidelines, process descriptions, working instructions and manuals apply this general guidance to specific situations; > Six key messages constitute the company’s mission statement, with a particular focus on the change process triggered by the expiry of the European sugar market regime on 30 September 2017 and:

> at least three Supervisory Board seats for people with a particularly international background (e.g. having worked abroad or holding foreign citizenship);

> The Business Principles form the basis for working together in a functional organizational structure.

> at least three Supervisory Board seats for people who hold no functions connected with customers, farmers’ associations or other business partners;

D EC L A R AT I O N B Y T H E E X EC U T I V E B OA R D

> at least four Supervisory Board seats for women. The target for the proportion of women on the Supervisory Board is 19 per cent, with an implementation deadline of 30 June 2017. > The age limit for Supervisory Board members is 65 as a general rule and > there is a membership limit of 25 years for the Super­ visory Board.

At present these targets have been met.

The Supervisory Board has adopted internal rules of procedure and to optimize its working practices has set up a Steering Committee, an Audit and Finance Committee, a Human Resources Committee and a Nomination Committee.

A N D S U P E R V I S O R Y B OA R D O F ­N O R DZ U C K E R AG I N ACCO R DA N C E W I T H S EC T I O N 161 A K TG For publicly traded companies the principles of good company management are laid down in the German Corporate Governance Code (hereafter known as the Code). The Code consists of recommendations and suggestions for good company management and also describes statutory obligations for publicly listed companies. Publicly traded companies must issue an annual statement on compliance with the Code’s recommendations pursuant to Sec. 161 of the German Stock Corporation Act (AktG). This declaration relates to both past and future periods. N ­ ordzucker AG is not a publicly traded company within the meaning of Sec. 161 paragraph 1 AktG. It is therefore not obliged to make an annual statement on whether the company complies with the Code issued by the Government Commission German Corporate Governance

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Code and the reasons for any non-compliance. Despite this, the principles of good and transparent corporate gover­ nance are an established part of the company culture at ­Nordzucker AG. As in previous years, the Executive Board and Supervisory Board of ­Nordzucker AG have therefore decided to make a voluntary statement pursuant to Sec. 161 paragraph 1 AktG (see page 113 of the annual report). The statements of compliance for the past five years can be found on the ­Nordzucker AG website. To the extent that the Code refers to statutory obligations of publicly quoted companies outside the scope of its recommendations, these are not applicable to ­Nordzucker AG. The company also assumes no voluntary obligation to adhere to them.

CO M P L I A N C E , R I S K M A N AG E M E N T, I N T E R N A L CO N T R O L S Y S T E M A N D INTERNAL AUDIT Compliance refers to all the activities carried out across the Group to ensure that the company, its managers and employees act in accordance with statutory and internal rules and regulations. The Supervisory Board and Executive Board of ­Nordzucker AG will not tolerate any breaches, especially breaches of anti-trust and anti-bribery legislation. All indications of any such breaches will be followed up without delay.

Internal measures are in place that aim to prevent employees and the company from breaking the law and help them to apply the relevant regulations and internal guidelines correctly. Training courses are held on a regular basis.

A responsible attitude to risk is also part of prudent company management and good corporate governance practice. The internal control system of the N ­ ordzucker Group ensures that risks are measured where they arise and steps are taken accordingly. Furthermore, the N ­ ordzucker Group has a risk management system to identify and measure developments that could cause substantial losses. The risk management system also serves to avoid risks that could jeopardize the company’s continued existence. Finally, internal audits are conducted on a regular basis, which contribute to good corporate governance by providing independent monitoring of the internal control system and risk management system.

FINANCIAL REPORTING ­ ordzucker AG prepares its annual financial statements in N accordance with the accounting principles of the German Commercial Code (HGB). The N ­ ordzucker Group applies International Financial Reporting Standards (IFRS) as appli­ cable in the European Union (EU).

S U S TA I N A B I L I T Y A S A N A L L- E N CO M PA SS I N G CO N C E P T Sustainability is a high-priority topic for the ­Nordzucker Group and many of its customers. As a food producer, ecological and social issues are a natural part of our daily work. For the ­Nordzucker Group it is vital to develop a sustainable value chain together with suppliers, service providers, employees and customers. Our top priorities are traceability, quality and dependability. The N ­ ordzucker AG Sustainability Report is available at www.nordzucker-growing-together.com.

Furthermore, meeting high standards for food and animal feed quality and safety, conserving resources, continuously minimizing and preventing environmental damage as well as safeguarding health and safety at work are an integral part of all the N ­ ordzucker Group’s activities. Particular importance is attached to avoiding and preventing errors.

Braunschweig, May 2016

For the Supervisory Board Hans-Christian Koehler Supervisory Board Chairman

For the Executive Board Hartwig Fuchs Executive Board Chairman

Further information : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

VO L U N TA R Y S TAT E M E N T O N T H E G E R M A N CO R P O R AT E G OV E R N A N C E CO D E I N ACCO R DA N C E W I T H S EC . 161 A K TG F O R T H E F I N A N C I A L Y E A R 2 015/2 016 ­ ordzucker AG is not a publicly traded company within N the meaning of Sec. 161 paragraph 1 AktG. It is therefore not obliged to make an annual statement on whether the company complies with the German Corporate Governance Code issued by the Government Commission German Corporate Governance Code and the reasons for any non-compliance. Despite this, the principles of good and transparent corporate governance are an established part of the company culture at ­Nordzucker AG. As in previous years, the Executive Board and Supervisory Board of N ­ ordzucker AG have ­therefore decided to make a voluntary statement pursuant to Sec. 161 paragraph 1 AktG. On this basis, the Executive Board and Supervisory Board of ­Nordzucker AG declare that since the last statement of compliance was made in March 2015, the company has complied and will comply with the recommendations of the Code as amended on 24 June 2014 and from its effective date, as amended on 5 May 2015, with the following exceptions:

1. Given the particular significance of agricultural expertise for the company, conflicts of interest to which Supervisory Board members may be subject are of secondary importance (Number 5.5.3 sentence 2).

2. As N ­ ordzucker AG is included in the consolidated financial statements of ­Nordzucker Holding AG, the latter company has a particular need for information (Number 6.1).

To the extent that the Code refers to statutory obligations of publicly quoted companies outside the scope of its recommendations, these are not applicable to ­Nordzucker AG. The company also assumes no voluntary obligation to adhere to them. Otherwise, we refer to the comments in the Corporate Governance Report.

Braunschweig, March 2016 Supervisory Board Executive Board Hans-Christian Koehler Hartwig Fuchs Supervisory Board Chairman Executive Board Chairman

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R E P O R T B Y T H E S U P E R V I S O R Y B OA R D O F 足N O R DZ U C K E R A G F O R T H E F I N A N C I A L Y E A R 2 015/2 016

Hans-Christian Koehler, Chairman of the Supervisory Board

Further information : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

DE AR SHAREHOLDERS, Contrary to our original expectations, Nordzucker generated a profit in the financial year 2015/2016, which makes it possible to pay a dividend at the same level as last year.

We see this as evidence that Nordzucker is well positioned, even in a persistently difficult environment. In addition to market prices, which were better than expected recently, two key decisions contributed to this positive result. The introduction of a functional organizational principle at the end of the 2014/2015 financial year, which along with leaner structures has streamlined decision-making processes, and the efficiency programme launched in 2014/2015, which enabled millions of Euros of savings in the financial year 2015/2016. However, efficiency is not a state of being, but a task that employees and the Executive Board have to put into practice every day. Not least for this reason, the Executive Board and Supervisory Board will be proposing at the Annual General Meeting to change the Articles of Association to reduce the Supervisory Board of Nordzucker AG from 21 to 15 members from the Annual General Meeting 2017.

Nordzucker is well prepared to face the new EU market without sugar quotas and minimum beet prices. The amendments adopted in July 2015 to the Articles of Association of Nordzucker Holding AG and Union-Zucker SĂźdhannover GmbH, along with the agreement on implementing delivery rights that was signed by the two holding companies and Nordzucker AG, ensure dependable and profitable beet cultivation for the farmers and for Nordzucker AG after the previous delivery rights expire on 30 September 2017.

In all our endeavours it is vital that we do not let up in future. The forthcoming liberalization of the European sugar market and the anticipated increase in price volatility in the years ahead will require the full commitment of beet farmers, shareholders and business partners, but also of our employees, our Executive Board and our Supervisory Board.

The strategy pursued by the Executive Board and Supervisory Board promises further growth in future. Indeed, not only in Europe, where we are expecting consolidation after 2017, but also in countries where we are predicting a sustained and significant increase in demand for sugar.

The Executive Board and the Supervisory Board are therefore proposing to create authorized share capital to give the Executive Board the ability to seize growth opportunities at short notice, subject to the approval of the Supervisory Board.

In the financial year 2015/2016, the Supervisory Board of Nordzucker AG carried out the duties required of it by statutes, the company’s Articles of Association and rules of procedure; advising and monitoring the Executive Board of Nordzucker AG and the Nordzucker Group on an ongoing basis. This monitoring and advising took place in particular in meetings of the Supervisory Board and its committees.

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S U P E R V I S O R Y B OA R D M E E T I N G S The Supervisory Board held four ordinary meetings in the 2015/2016 financial year. Furthermore, the Supervisory Board held a closed meeting in March 2015, a constitutive meeting following the Annual General Meeting in July 2015 and a strategy meeting in October 2015.

The Executive Board also attended each of the meetings.

Before its first ordinary meeting the Supervisory Board met for a closed meeting on 25 March 2015 to discuss in detail the efficiency review of its work carried out at the end of the 2014/2015 financial year with the support of external advisers. In line with the German Corporate Governance Code we carried out this review in 2010/2011, 2012/2013 and in 2015/2016.

Proposals were discussed for optimizing the work of the Supervisory Board and its committees and the working relationship with the Executive Board on the basis of individual discussions and the analysis of questionnaires. In addition to reducing the number of Supervisory Board members from 2017 there were calls for the consistent follow-up of agreed measures and greater transparency in obtaining information. We have since initiated the appropriate changes.

At its first ordinary meeting on 26 March 2015, the Supervisory Board adopted the budget for the Nordzucker Group for the financial year 2015/2016, and took note of the long-term financial planning. The Supervisory Board also decided to amend the rules of procedure for the Executive Board following the introduction of the functional structure. To prevent undesirable information silos the Executive Board was given the option of setting up a Business Team and assigning tasks to it, without affecting the overall responsibility of the Executive Board.

Furthermore, the Supervisory Board discussed the recommendations and suggestions of the German Corporate Governance Code as amended on 24 June 2014 and adopted an updated voluntary statement of compliance in line with Section 161 Stock Corporation Act, which is permanently available to the shareholders on the website of Nordzucker AG and in its annual report. A resolution was also passed on the Executive Board’s variable remuneration for the financial year 2014/2015.

The individual and consolidated financial statements for the financial year 2014/2015 and the dependent company report were the main subject of the second ordinary Supervisory Board meeting held on 1 June 2015 (financial statements meeting). After hearing the auditors’ report and conducting an in-depth discussion, and on the recommendation of its Audit and Finance Committee, the Supervisory Board endorsed the annual financial statements of Nordzucker AG and approved the consolidated financial statements. The Supervisory Board’s proposals to the Annual General Meeting to be held on 16 July 2015 were also on the agenda. In addition, and at the recommendation of its Human Resources Committee, the Supervisory Board adopted the targets for the variable remuneration of the Executive Board for the year 2015/2016.

At the Annual General Meeting on 16 July 2015 the shareholders of Nordzucker AG again elected Dr Karl-Heinz Engel to the Supervisory Board. Joachim Engelke and Friedrich Christoph Heins were elected as new members of the Supervisory Board to replace Dr Clemens Große Frie and Helmut Meyer, whose terms of office had come to an end. The Supervisory Board thanks Dr Clemens Große Frie and Helmut Meyer for all their work for the Nordzucker Group over many years. The constitutive meeting of the Supervisory Board took place immediately after the Annual General Meeting and focused on personnel matters: Hans-Christian Koehler was confirmed as Chairman of the Supervisory Board. The shareholder representative, Jochen Johannes Juister, and the employee representative, Dieter Woischke, were elected as Deputy

Further information : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

Chairmen. The following members were re-elected to the Steering Committee, which is chaired by Hans-Christian Koehler as Chairman of the Supervisory Board: Hans Jochen Bosse, Michael Gerlif, Dr Harald Isermeyer, Jochen Johannes Juister, Sigrun Krussmann and Dieter ­Woischke. Michael Gerlif was re-elected as chairman and Ulf Gabriel, Dr Harald Isermeyer, Jochen Johannes Juister and Marina Strootmann were re-elected as members of the Audit and Finance Committee. Dr Harald Isermeyer, Sigrun Krussmann, Dieter Woischke and Grit Worsch were elected as members of the Human Resources Committee and Helmut B ­ leckwenn, Gerhard Borchert, Dr Harald Isermeyer and Dr Hans Theo Jachmann were elected to the Nomination Committee. Hans-Christian Koehler chairs the Human Resources and Nomination Committees in his role as Chairman of the Supervisory Board. The Supervisory Board adopted targets for the composition of Supervisory Board and Executive Board in accordance with item 5.4.1 of the German Corporate Governance Code. The Supervisory Board also took into account the flexible new gender quota introduced by parliament as of 30 June 2017 (see Corporate Governance Report in the Management Report).

A strategy meeting of the Supervisory Board and Executive Board took place on 14 October 2015. Both boards are agreed that the Nordzucker Group should strive for further growth inside and outside of Europe. We intend to achieve this growth by taking part in the forth­ coming consolidation process in the EU and in turn this growth will secure our productivity in the new market environment and against greater competition.

At its third ordinary meeting held on 15 October 2015, the Supervisory Board, after careful consideration and on the recommendation of its Audit and Finance Committee, adopted the investment budget for the financial year 2016/2017 as proposed by the Executive Board.

Discussions also focussed on the steps to be taken following the departure of Mats Liljestam from the Executive Board of Nordzucker AG. The fourth ordinary Supervisory Board meeting was held on 3 December 2015 as part of a Supervisory Board excursion to the plant in Nordstemmen. It focused on the future potential of beet farming in the Nordzucker Group and on questions such as: where can Nordzucker expand its land under beet? In what areas is sugar beet under particular pressure from competing crops? In addition, the Supervisory Board assured itself of the effectiveness of the ­Nordzucker Group’s Internal Audit department, its risk management and its internal control ­system. These are three elementary company functions whose effectiveness is reviewed regularly.

At all its meetings in the reporting year the Supervisory Board also discussed the consequences and risks of the antitrust proceedings, the company’s financial status and the forecasts and budgets for Nordzucker AG and the Nordzucker Group. It discussed the Nordzucker Group’s strategy, continued development and corporate planning with the Executive Board on a regular basis. Also discussed at Supervisory Board meetings were the course of business, risk exposure, risk management, the internal control system and conformity with compliance regulations as well as transactions of considerable importance.

The Executive Board fulfilled its obligations as defined by statute, the Articles of Association and the rules of procedure and regularly informed the Supervisory Board about events of importance for the company, promptly and comprehensively, both in the course of and outside Supervisory Board meetings. The Executive Board presented to the Supervisory Board all matters requiring its authorization. After thorough review and discussion, the Supervisory Board gave its approval to the Executive Board proposals.

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The Chairman of the Supervisory Board was in regular contact with the Executive Board, also in-between Supervisory Board meetings. He was informed of the current state of business and major transactions and discussed with the Executive Board matters of strategy, planning, corporate development, risk exposure, risk management and compliance with company standards.

S U P E R V I S O R Y B OA R D CO M M I T T E E S For the efficient exercise of its duties, the Supervisory Board of Nordzucker AG has formed four committees: the Steering Committee, the Audit and Finance Committee, the Human Resources Committee and the Nomination Committee. The committee chairs reported on the main elements of the committee meetings at the Supervisory Board meetings. Minutes of all committee meetings were provided to all the Supervisory Board members.

The Steering Committee of the Supervisory Board met five times in the 2015/2016 financial year (10 March, 12 May, 29 September, 19 November 2015 and 16 February 2016).

The Supervisory Board Executive Committee discussed the latest key topics concerning the ­Nordzucker Group, important projects and the company’s strategic direction after the expiry of sugar quotas and the EU minimum price. In addition, the Executive Committee prepared the Supervisory Board meetings (including the dates and agenda items) and the Annual General Meeting, as well as the closed meeting and strategy meeting of the Supervisory Board, and looked closely at the voluntary statement of compliance by Nordzucker AG on the German Corporate Governance Code in line with Section 161 of the German Stock Corporation Act (AktG).

The Audit and Finance Committee met five times in the financial year 2015/2016 (10 March, 12 May, 29 September, 19 November 2015 and 16 February 2016). Another meeting was held by conference call on 9 February 2016. It looked regularly at the financial situation and forecasts, company funding, investment planning, quarterly and half-yearly financial statements for the Nordzucker Group and Nordzucker AG, risk management, the internal control system and the effectiveness, the resources and the findings of the Internal Audit department. In the presence of the auditors, the committee discussed the financial statements and management reports for the Nordzucker Group and Nordzucker AG for the financial year 2014/2015. Its work also included appointing the auditors for the financial year 2015/2016 and verifying their independence. The examination and approval of the individual and consolidated financial statements and the dependent company report for the past financial year 2015/2016 as well as the proposal for election of the auditors for the financial year 2016/2017 and the dividend proposal to the Annual General Meeting were prepared at an additional meeting held outside the period under review on 9 May 2016.

The Human Resources Committee met on 5 March 2015 and 17 February 2016 in the reporting period. Another meeting took place by conference call on 3 April 2015. In particular, it reviewed the system of Executive Board remuneration and prepared the Supervisory Board’s decision on their variable remuneration (see Remuneration Report in the Annual Report).

Further information : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

In 2015/2016, the Nomination Committee met on 9 March 2015, 1 June 2015 and 15 February 2016. It updated the job description for the shareholder representatives on the Supervisory Board. It gave the full Supervisory Board recommendations for its proposal to the Annual General Meeting on the election of shareholder representatives to the Supervisory Board. It made proposals to the full Supervisory Board on candidates for the chair and deputies as well as the Supervisory Board committees.

F I N A N C I A L S TAT E M E N T S 2 015/2 016 The Executive Board presented the Supervisory Board in good time with the annual financial statements of Nordzucker AG and the Group, the management report and the Group management report, the proposal for the use of profits and the report on related party transactions.

Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Hanover, were selected as auditors at the Annual General Meeting on 16 July 2015 at the Supervisory Board’s proposal. They audited the 2015/2016 financial statements for Nordzucker AG, its management report, the consolidated financial statements and the Group management report and issued each with an unqualified audit opinion. The auditors also audited the dependent company report, presented it to the Supervisory Board members in good time and gave the following opinion: ‘Following our professional audit and assessment we confirm that 1. the factual statements in the report are correct, and 2. that the consideration paid by the company in the transactions listed in the report was not inappropriately high.’

The aforementioned documents were presented in good time, examined thoroughly by the Audit and Finance Committee and the Supervisory Board, and were discussed in detail in the presence of the auditors following their report on the main findings of the audit. The Supervisory Board concurs with the result of the audit and concluded from its own ­examination at the meeting held on 23 May 2016 that it has no objections to make. The Supervisory Board approved the annual financial statements as prepared by the Executive Board, which are thereby adopted. The Supervisory Board also approved the Executive Board’s proposal to use the net distributable profit to pay a dividend of EUR 0.10 per share for the financial year 2015/2016.

The Supervisory Board would like to thank the Executive Board and all the employees of the Nordzucker Group for their work in 2015/2016.

Braunschweig, Germany, 23 May 2016

Hans-Christian Koehler Chairman of the Supervisory Board

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G LO S S A R Y FINANCE Cashflow Net inflow of cash funds. Difference between cash received and cash paid out in a reporting period. The cash flow is available to the company for investment, the repayment of liabilities and the distribution of profits.

Declaration of compliance Statement to be issued and published every financial year by the Executive and Supervisory Boards of publicly listed companies as required by Sec. 161 AktG (German Stock Corporation Act), stating the extent to which the company complies with the recommendations of the Government Commission German Corporate Governance Code, and any recommendations which are not followed.

Dividend The amount of a stock corporation’s distributable profit attri­ butable to an individual share. The dividend is expressed either as a percentage of the nominal value or in currency units per share (dividend per share). The Annual General Meeting decides on the distribution of a dividend. In ­Germany, the dividend is paid annually.

EBIT (earnings before interest and taxes) This describes the profit from operations before the deduction of interest and taxes. This indicator is intended to measure the result of ordinary operations. It takes no account of companies’ different capital structures, so general interest rates and tax rates are not factored in.

EBITDA (earnings before interest, taxes, depreciation and amortization) This describes the profit from operations before the deduction of interest, taxes, depreciation, amortisation and impairment.

It is a measure of a company’s operating performance before expenses for investments are taken into account.

Equity ratio This expresses shareholders’ equity as a percentage of total assets.

Future A binding contract between two parties (in contrast to an option, which only binds one of the parties) to be executed at some point in the future. This type of contract is characterised by the binding supply (for the seller) and the acceptance (for the buyer) of a precisely defined asset (underlying) in a certain volume (contract amount) and quality at a fixed point in the future (date) and at a price set when the contract is signed.

German Corporate Governance Code (GCGC) A code drawn up in 2002, dealing with the management and supervision of publicly listed companies in Germany.

The GCGC includes nationally and internationally accepted standards of responsible corporate governance, primarily aimed at transparency and accountability. They define the responsibilities of Executive and Supervisory Boards and lay down rules and recommendations to protect shareholder rights, on the appointment of members of management and super­visory bodies, and their remuneration. Companies that are not publicly listed are also recommended to follow the GCGC. Goodwill The intangible asset created when the purchase price for a company is higher than its revalued equity.

Net debt Financial liabilities less cash and cash equivalents.

Return on equity This shows the profitability of the capital employed. It is obtained by dividing net income for the period by the amount of shareholders’ equity.

Return on sales A performance indicator that shows the earnings for the period in relation to revenues, thereby giving an indication of the company’s profitability.

Swap A general financial term for an agreement based on the exchange of underlying assets in the future. These can be cash flows, interest payments, foreign currencies, commodities, etc. The agreement defines how the swap is to be settled and when it takes place.

Syndicated loan A loan extended by several banks (syndicate, consortium) on the basis of uniform contractual documentation and on the same terms and conditions.

Further information : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

SUGAR AND BIOETHANOL Bioethanol (agricultural alcohol) Ethanol made from biomass (renewable sources of carbon).

Starch (e.g. from wheat or maize) is broken down into glucose using enzymes. Yeast is then added and the glucose fermented to form ethanol. To produce ethanol from sugar beet, the intermediate products of the sugar-making process known as raw juice or thick juice are fermented directly. Compared with fossil fuels, bioethanol is CO2-neutral and offers long-term economic benefits. In Germany, the Biofuels Quota Act, which has been in force since 2007, defines the blending ratios of bioethanol to conventional fuels for combustion engines.

Cossettes or pressed pulp Pressed beet cossettes are a by-product of the sugar-making process. They are used as animal feed.

CO2 (carbon dioxide, ‘greenhouse gas’) Chemical compound of carbon and oxygen, which belongs to the group of oxocarbons, along with carbon monoxide.

The colourless, odourless gas is a natural component of air.

It is created by the combustion of substances containing ­carbon, and during cellular respiration. Plants and some ­bacteria convert CO2 into biomass.

Emission The release of substances into the environment.

Isoglucose Sugar made primarily from maize starch and used in beverages and preserved fruit. Isoglucose is a regulated market product.

Molasses Syrupy by-product of sugar production, which is used to make yeasts and animal feed.

Pellets or dried pulp pellets By-product of sugar production. Pellets consist of extracted, dried sugar beet cossettes, which are sold as animal feed, with or without molasses.

Refining A general term used to describe the purification and enhancement of raw materials. For sugar, it means bleaching brown raw sugar (from sugar cane or sugar beet) by a (repeated) series of steps to make refined, granulated sugar.

Stevia A sweetener made from the plant Stevia rebaudiana (known as sweetleaf or sugar leaf), which consists mainly of steviol glycosides. Steviol glycosides have been approved in the EU as a food additive (E 960) since 2 December 2011.

Thick juice A purified sugar juice reduced to around 70 to 75 per cent dry content. Thick juice is produced at the end of the evaporation plant, before the sugar is finally crystallised by boiling in the sugar house.

White sugar The normal household sugar, made by refining raw sugar.

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SUGAR INDUSTRY ACP countries (Africa, Caribbean and Pacific) Seventy-seven mostly former French and British colonies, to which the EU has, since 1975, granted preferential access to its internal market and the duty-free import of 1.3 million tonnes of raw sugar by means of preferential trade agreements (Cotonou Agreement). As of 2008, the EU intends to replace the Cotonou Agreement with Economic Partnership Agreements (EPA) with the ACP countries. In terms of sugar, these countries should then be treated equally with the least developed countries (LDC).

Dansukker Nordic Sugar, part of the ­Nordzucker Group, offers consumers a wide range of sweet sugar products from sugar beet and sugar cane under the brand name of Dansukker. The assortment is refined continuously in keeping with the needs of modern households, and includes, for example, various types of granulated sugar, sugar cubes and icing sugar, brown sugar and syrups as well as organic and fair trade products.

Fair trade The core of the fair trade standard is the payment of a guaranteed minimum price, which is above the world market price and covers the producers’ cost of living and cultivation.

LDC (Least developed countries) This term is used in an EU resolution from 2001 by which ‘everything but arms’ may be imported into the EU from the 50 least developed countries free of customs duties. A transitional period up to 2009 was agreed for sugar. Since 1 July 2009, sugar exports from LDC to the EU have been not subject to customs duties or volume restrictions.

Production levy Market regulation charge levied on beet farmers and sugar producers to finance exports of quota sugar not sold in the EU. SMR (sugar market regime) A common market regime for sugar in the EEC/EC/EU since 1968, which governs the prices for sugar and sugar beet, maxi­ mum production volumes for sugar and import restrictions.

The previous regulation (EC) No. 1260/2001 was replaced as of 1 July 2006 by regulation (EC) No. 318/2006, which was passed by the agricultural ministers of the EU member states on 20 February 2006. The SMR in its current form expires on 30 September 2017.

Sugar marketing year (SMY) The financial year for the common sugar market regime in the EU starts on 1 October and ends on 30 September.

Sugar quota Sugar quotas were introduced in the EU to limit sugar production and prevent surpluses. Volumes produced within these quotas benefit from a sales and price guarantee.

SweetFamily The international umbrella brand of the ­Nordzucker Group.

Beet sugar products for consumers, bakers and the food industry have been marketed under the SweetFamily brand in Germany, Poland, Slovakia and Hungary since November 2004.

WTO (World Trade Organisation) A multinational organisation based in Geneva, in which 150 member states negotiate the liberalisation of global trade.

Further information : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

C E R T I F I C AT I O N , Q UA L I T Y A SS U R A N C E A N D CO N S U M E R P R OT EC T I O N DIN EN ISO 9001 This standard is part of the EN ISO 9000 series, which docu­ ments the principles of quality management. EN ISO 9001 deals specifically with the requirements of a quality management system, by which an organisation must demonstrate its ability to supply products that meet the specifications of its customers and any regulatory requirements.

DIN EN ISO 14001 This international standard defines accepted requirements for environmental management systems.

DIN EN ISO 22000 This standard covers requirements for an internationally accepted management system for food safety.

DIN EN ISO 50001 A certifiable ISO (International Organisation for Standard­ isation) standard that defines the requirements for the establishment, implementation, maintenance and improvement of an energy management system.

EMAS III (,Eco Management and Audit Scheme’) Voluntary EU system for environmental management and the promotion of environmental protection.

FSSC 22000 The first global food safety norm covering food production. The standard was developed specially for companies producing or processing animal or plant-based products or ingredients.

GMP B2 (Good Manufacturing Practice B2) Dutch quality management standard for foreign suppliers of animal feed.

IFS Standard (International Food Standard) This standard covers food safety and consumer protection.

OHSAS 18001 (Occupational Health and Safety Assessment Series) Not a norm, but can be used as a certification basis for management systems relating to health and safety at work. The structure of OHSAS is oriented towards DIN EN ISO 14001.

This makes it suitable for use as an integrated management system.

PAS 220 (Publicly Available Specification 220) Certification standard developed to define basic requirements for the certification of production processes with the food supply chain and intended to assist in controlling food safety standards. It is intended to be used in conjunction with DIN EN ISO 22000. ISO 22000 and PAS 220 are generally known as FSSC 22000.

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I M P O R TA N T DAT E S F I N A N C I A L C A L E N DA R 28 June 2016 Shareholder meeting Union-Zucker S端dhannover in N旦rten-Hardenberg 6 July 2016 Annual General Meeting 足Nordzucker Holding AG, City hall Braunschweig 7 July 2016 Annual General Meeting 足Nordzucker AG, City hall Braunschweig

O N L I N E P U B L I C AT I O N S The following publications can be downloaded from www.nordzucker.de > Annual Reports and Interim Reports > Declaration of compliance > Letter to shareholders Please also visit our sustainability website: www.nordzucker-growing-together.com

Further information : N O R D Z U C K E R A N N U A L R E P O R T 2015/2016

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Nordzucker AG K端chenstrasse 9 38100 Braunschweig Germany Telephone: +49 (0) 531 2411-0 Fax: +49 (0) 531 2411-100 info@nordzucker.de www.nordzucker.de Corporate Communications Christian Kionka Telephone: +49 (0) 531 2411-173 pr@nordzucker.de Investor Relations Bianca Deppe-Leickel Telephone: +49 (0) 531 2411-335 ir@nordzucker.de Shares register Nicole Riedel-Elias Telephone: +49 (0) 531 2411-163 aktien@nordzucker.de

Printed copies of this Annual Report for the Nordzucker Group are also available in German.

Alternatively, the report is available online in German or English as an HTML version and can be downloaded as a PDF at www.nordzucker.de from the Download Centre.

Some of the photographs that have been used come from a photo competition and were taken

by Nordzucker staff.