Letter from the Chairman and the Chief Executive Officer

The historically low sugar prices in Europe had an undeniable impact on Cosun’s financial results in 2015. In line with expectations, the fall in the results had a knock-on effect on the price the cooperative paid to its members for their beet. The beet price was nevertheless higher than we had expected, due to the good operating profits of all Cosun’s activities.

Step by step, we have very specifically strengthened our activity portfolio in recent years. This is reflected in the spread of our turnover. Alongside Suiker Unie – which is good for more than a third of group turnover – Aviko also earns more than a third of our turnover. The rest is earned by Sensus, SVZ and Duynie together.

The spread is proving to have been a good choice because all business groups made substantial contributions to the result in 2015. Our five activities were able to cushion the volatility in the markets. We have laid a solid basis under our results and created stable foundations for the beet price after 2017.

INVESTING IN PROFITABLE GROWTH
Our goal is profitable growth in existing and new activities by extracting more value from our vegetable raw materials. We therefore made substantial investments in all our businesses in 2015, in total EUR 109 million. We have increased the capacity of various factories, and invested in process improvements and energy savings, in R&D facilities and, of course, in our staff. They, after all, make sure everything runs smoothly.

To prepare ourselves for the new reality of the European sugar market we worked on three fronts: market share, processing capacity and raw material supply. We increased our market share by supplying imported cane sugar to EU markets with a sugar shortage. We will gradually increase the processing capacity of the Dutch sugar factories in the years ahead to 28,000 tonnes of beet per day. We can keep our costs low only if the factories are running at full capacity.

This means that Suiker Unie needs more sugar beet. The beet acreage and the sugar yield per hectare must – and can – be increased. The cooperative will have to pay its growers a good price for their beet to ensure they keep growing sugar beet. This is a common interest of both the growers and the cooperative.

MEMBER SUPPLY CERTIFICATES
The abolition of the EU market organisation for sugar also marks the end of the quota system. Cosun has developed a new, robust system to match the supply of sugar beet to the demand for sugar. Cultivation and production are determined by the ability to make a profit on the sale of sugar. The profit we forecast for the year determines the allocation ratio. It can vary from about 90% to 110%. The new system is based on a combination of the shares and the basic reference for each member. The conversion will take place in 2016 and will form the basis for the allocation as from 2017.

NEW REALITY
Even though the market organisation will still be in force for another year, we are already living in the new reality. This can be seen in the volatility in European sugar prices, which will continue to have an impact on our business in the future. What we will offer in return as from 2017 is the security of the minimum beet price paid by Cosun, which is higher than the current EU price, plus the members’ bonus and plus the ability to increase beet cultivation if a member wishes to do so. And we are certainly intending to consolidate our lead in the sustainable cultivation and processing or sugar beet. Without it, we will be unable to sell our sugar at a good price.

All cooperative sugar factories in the Netherlands joined forces fifty years ago this year. A couple of years later, the EU sugar market organisation was introduced. In the past 50 years we have created a solid cooperative that is strong enough to rise to the challenges of the new reality.

Dirk de Lugt     
Chairman of the Board
Robert Smith
Chief Executive Officer

Breda, 17 March 2016