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Cosun: healthy cooperative

17 March 2009

Cosun achieved net turnover for 2008 of € 1,689 million (2007: € 1,713 million). Loss of turnover following the sale of Unifine Sauces & Spices was largely compensated for by higher turnover at a number of other Cosun business groups. Operating profit fell by 14% to € 86 million. Group equity increased to € 725 million (2007: € 705 million). The group funding position is thus comfortably within the limits agreed with the financial institutions. Risk capital as a percentage of total assets increased to 43% in 2008 and remains very healthy.
Suiker Unie and Sensus posted good results. Results on other activities were lower than in 2007. The business groups carrying products and ingredients for the higher market segments were faced with the consequences of demand falling from the 2007 level. Cosun, too, felt the impact of the economic slowdown in its results for 2008.
 
Business groups
Despite the fall in sugar prices, Suiker Unie's turnover increased by more than 10% thanks chiefly to the full consolidation of the contribution from the former CSM Suiker in 2008. In addition, income was lifted by the sale of by-products partly as a result of high wheat prices during a large part of 2008.
Despite the high EU restructuring levy, Suiker Unie's operating profit remained firm. This was due largely to synergy gains following the integration of CSM Suiker and Suiker Unie. This process was successfully completed in a relatively short period of time and produced a significant cost reduction. Three locations – in Groningen, Diemen and Breda – were closed. Substantial savings were realised, particularly in staff and logistics costs. The figures for 2008 include the cost of closing the Groningen sugar factory.
 

Higher inulin sales led to an increase in both Sensus's turnover and profits. Sensus's operating profit was improved by higher sales, despite an increase in raw material costs. Worldwide, demand for functional food ingredients such as inulin is continuing to grow. It was particularly strong in the United States and Sensus was able to improve its position in the market. Production capacity was increased in 2008. 
 
Nedalco grew its sales and turnover thanks in part to the new factory in Manchester (UK) coming on stream in 2008. This was accompanied, however, by teething problems in the supply of raw materials and sales of by-products, which increased the cost base and exerted pressure on profitability. In addition, Nedalco suffered the consequences of sharply higher raw material and energy costs that could not be adequately passed on in selling prices. As a result, operating profit was lower than in 2007.
 
Aviko's turnover was increased by organic growth in potato chip sales and the acquisition at the beginning of 2008 of Eurofreez, a specialist in high quality frozen products. Aviko strengthened its position in the European market for potato specialities with higher added value, such as frozen meal components, coated products, au gratin products and purées. Aviko's other activities (dried potato products and residual flows) improved their contribution to profit, chiefly on account of higher sales revenue. The sharp increase in the cost of energy, palm oil and storage could not be adequately passed on. Margins accordingly came under pressure and the operating profit was lower.
 
For SVZ, 2008 was a difficult year with a very disappointing result. The increase in turnover seen in recent years could not be maintained. Owing to lower raw material prices and weak demand, particularly in the higher added value segment, turnover was sharply lower. The economic head wind in the UK and Japanese markets resulted in considerably lower sales and profitability. High stock costs, lower capacity utilisation rates at the factories and a diminution in the value of stocks placed the result under pressure.
 
Unifine Food & Bake Ingredients (Unifine F&Bi) posted an increase in its turnover thanks to acquisitions and organic growth. The result, however, was lower than that for 2007, partly on account of the fall of the pound sterling and a drop in turnover in the Spanish market. The high cost structure at the Belgian factory placed pressure on profitability. The number of activities and business processes at this factory will be simplified to bring about a structural reduction in costs in the future.
 
Strategy
For many years, Cosun's strategy has rested on two pillars. One is to maintain the group's position in the European sugar market and to improve the efficiency of the sugar activities. The second is to increase income from other activities. The strategy was put to the test in 2008. The conclusion was that the course is good and drastic corrections are not necessary. New group opportunities are present in the existing portfolio, in part by creating more value from the raw materials that the Cosun businesses process in addition to the traditional products for the animal feed sector. Nedalco's R&D programme to develop bio-ethanol using second-generation technology will be continued. It has been decided that Nedalco will not invest in the production of biofuels based on first-generation technology.
 
Prospects
Many of the countries in which Cosun is active are in recession. Consumer behaviour, which is founded on confidence, will largely determine the impact of the crisis. The food industry is relatively less cyclically sensitive than many other industries. Nevertheless, there will also be a negative impact in 2009, although it will differ from one business group to another. Some of Cosun's activities already felt the sharp decline in demand in 2008.
 
The further consequences of the recession are difficult to predict at present. Cost reduction programmes have been introduced to minimise the consequences of further falls in demand. The integration of CSM Suiker and Suiker Unie has already produced significant savings and the full benefits will be seen in 2009. The acquisition of the German sugar factory in Anklam (early 2009) will contribute to profit in the current financial year.
In view of the uncertain outlook, Cosun does not consider it advisable to make a concrete forecast of turnover and profit for the current year.