Letter from the Chairman and the CEO

Despite the weak European sugar prices and the tightness on the animal feed market throughout the year, Cosun managed to turn in an even better result than in the previous year. This is proof that the priority we have given to operational excellence can pay off even in less favourable market conditions. The price our cooperative was able to pay for its beet could not be matched anywhere else in the EU. Aviko reported a particularly strong improvement in its result. Cosun is in robust health and is looking forward to the period after the termination of the EU common sugar market with confidence.

We continued to implement our strategy during the year. We made substantial investments in the production capacity of our factories in order to facilitate organic growth. Suiker Unie will complete the implementation of most of its long-term master plan in 2017. Aviko will invest more to increase its capacity in the years ahead, starting with its existing production facilities. At the same time, we are working across the board to perfect the current processes, optimise safety at work and the quality of our products and maximise cost savings.

After 50 years, we are now approaching the end of regulated sugar production in the European Union. Cosun has thoroughly prepared itself for the change. We have seen more frequent and wider swings in European sugar prices in recent years and the profit contribution from our sugar activities has fluctuated accordingly. We have also seen that the cooperative has the resilience necessary to withstand the turbulence in the sales markets.

GLOBAL DEVELOPMENTS
Some of the events we witnessed last year would previously have been thought impossible. Donald Trump was elected President of the United States, the United Kingdom voted to leave the EU and the outcomes of the elections in the Netherlands, France and Germany are too uncertain to call. The playing fields in Europe and the rest of the world are changing rapidly and unpredictably. Being robust is no longer enough; we also have to be agile. If we cannot control the conditions, we have to take advantage of the opportunities. The climate goals to reduce CO2 emissions, for example, are an opportunity for all arable farmers, but especially for sugar beet growers. The crop can store a relatively high amount of carbon dioxide. Innovative use of the biomass produced at our production facilities is also compatible with the climate policy. International business will not benefit from new trade barriers, and Cosun is no exception. But it will prosper only if the playing field is level and the regulations are consistent.

SOLID FOUNDATIONS
Our ambition remains to create value by making optimal use of all parts of the vegetable raw materials we process. We have a proven track record in this area and we intend to protect it so that we remain the leader in our markets. Profitable organic growth is our aim. We can also generate more added value by keeping our costs low, raising the efficiency of our production and innovating new processes. The trend towards more biobased (green) components in non-food applications offers opportunities, but they are not without their costs. The composition of our business portfolio forms a solid foundation to pay the members of the cooperative an acceptable price for their sugar beet, even if the results on sugar activities are disappointing.

INCREASED BEET CROP
Sugar beet is and will remain an attractive crop. We have identified opportunities for further growth in Europe and openings to sell sugar in regions that have a shortage. By keeping our costs as low as possible and deploying smart logistics, we can serve our major international customers wherever they wish.

This also offers opportunities to ambitious farmers. As a cooperative of beet growers, we issued additional supply certificates to the members during the year in order to control growth. These tradeable certificates give the growers the right to supply more beet. The number of certificates issued each year is based on the annual forecast of the sugar sales expected for that year. This system helps keep the total beet crop in step with the projected volume of sugar sales.

NEW ERA
We prepared ourselves for the period after the EU common sugar market in recent years. We are ready for the change: we have a solid financial position, our factories are in order, and our staff and the members of the cooperative are eager to commence. Our customers and business partners are relying on the continuity and quality of our supplies and cooperation in the value chain. Together with our suppliers and partners in the value chain we will work on the sustainability of food production and the biobased economy. Noblesse oblige, we want to be worthy of our “Royal” title.

Dirk de Lugt     
Chairman of the Board
Robert Smith
President & CEO

Breda, 16 March 2017