Annual Report Royal Cosun Annual report

Transcription

1 Annual Report Royal Cosun 2005 Annual report 2005

2 Contents Profile 2 Key figures 3 REPORT OF THE BOARD AND THE EXECUTIVE BOARD 4 -Financial performance 4 -Prospects 5 -Strategy & policy 5 Know-how, people and the environment 7 -Research & development 7 -Staff & organisation 8 -The environment 9 Business groups 10 -Suiker Unie 10 -Sensus 11 -Nedalco 11 -Aviko 12 -Unifine Food & Bake Ingredients 13 -Unifine Sauces & Spices 14 -SVZ 15 Management matters 16 -Risk profile & risk management 16 -Corporate governance 17 -Cooperative issues 18 -Members and shares per district 19 -Board, Supervisory Board, Executive Board and Central Works Council 20 REPORT OF THE SUPERVISORY BOARD 22 1 Annual Report 2005 ANNUAL ACCOUNTS 23 -Consolidated balance sheet 24 -Consolidated profit and loss account 25 -Consolidated cash flow statement 26 -Consolidated statement of total recognised gains and losses 27 -Notes to the consolidated accounts 28 -Cooperative balance sheet 45 -Cooperative profit and loss account 46 -Notes to the cooperative accounts 46 OTHER INFORMATION 55 -Auditors report 55 -Provisions of the articles of association on profit appropriation 55 -Proposed profit appropriation 55 -Post-balance sheet events 55

3 Royal Cosun, at home in food Cosun produces and sells natural ingredients and foodstuffs for the international food industry, foodservice channel (restaurants, caterers and wholesalers) and retail outlets. Its activities are organised into three groups: Basic ingredients, including sugar, industrial alcohol, inulin and fructose (Suiker Unie, Royal Nedalco and Sensus). Potato products, including chilled, frozen and dried potato products and a wide range of other prepared potato specialities (Aviko). Compound ingredients, including fine bakery specialities, sauces, marinades, dressings, toppings, spices, mixes and fruit & vegetable applications (Unifine Food & Bake Ingredients, Unifine Sauces & Spices and SVZ). As a specialist in the taste, functionality and health of ingredients, Cosun develops product concepts and applications that meet its customers individual wishes. This expertise is focused on specific customer groups and applications. For research and quality control, we have our own research and development organisation, Cosun Food Technology Centre. Our home market is Europe. The group as a whole achieves a turnover of EUR 1.3 billion and has a workforce of about 4,200 FTEs. Cosun was established in 1899 as a cooperative of Dutch sugar beet growers. Cooperation has remained the group s driving force. We work in the first links of the food chain through the collection and large-scale processing of farm products into high quality ingredients and foods. Together with our customers, suppliers and members, we develop products that meet the needs of the food market both now and in the future. 2 Annual Report 2005

4 Royal Cosun, at home in food Sustainability Cosun is driven not only by cooperation throughout the food chain but also by sustainability. Sustainability is expressed in the long-term future of beet and sugar production in the Netherlands. Our members supply the raw materials to produce sugar and, moreover, have a right to a return on their investment in the business. Sustainability is also expressed in the durable relationship with our customers and our contribution to their commercial success. Our customers can rely on our commitment to the development of foods that promote healthy lifestyles and their application in their production processes. Sustainability is also seen in the respect we show to people, the environment and society. It is reflected in our responsible production methods that minimise the impact on our surroundings, in the respect we show to the natural and human environment and in the safe working conditions we offer our staff. Furthermore, we recognise our responsibility to use our know-how, skills, creativity and experience to develop innovative foods and ingredients that suit a healthy lifestyle, offer added functional value, taste good and are safe. 3 Key figures in EUR millions * 2003* 2002* 2001* Consolidated net turnover 1,339 1,317 1,321 1, Operating profit 53 (25) Annual Report 2005 Operating profit before goodwill amortisation and incidental items** Result for the year Cash flow from operating activities Depreciation of tangible fixed assets Capital expenditure on tangible fixed assets Capital and reserves Group equity as a percentage of total assets Total assets 1,259 1,245 1,283 1, Average number of employees in FTEs 4,194 3,993 4,325 3,783 3,364 Sugar beet price*** Sugar beet purchases from members * Prior-year figures have been restated for comparative purposes ** Incidental items consist of impairments in the value of fixed assets, reorganisation provisions and results on the sale of participating interests and tangible fixed assets *** Price in EUR per tonne of beet with average sugar content and average extractability

5 Report of the Board and the Executive Board 2005 was the first year in which Cosun processed all its Dutch sugar beet at just two factories and a year in which it took important steps to ensure the future profitability of its alcohol operations. FINANCIAL PERFORMANCE 4 Annual Report 2005 Results Cosun s consolidated net turnover for 2005 increased slightly to EUR 1,339 million (2004: EUR 1,317 million), chiefly on account of the full consolidation of Nedalco for the first time. The operating result was considerably higher, jumping EUR 78 million from an operating loss of EUR 25 million in 2004 to an operating profit of EUR 53 million in The operating profit should be considered, however, after adjustment for net incidental items of EUR 69 million negative in 2004 and EUR 4 million negative in Greater competition in the sugar market and narrower margins in the frozen potato product market were clearly perceptible. The new sugar market organisation is casting its shadow in advance. The supply of sugar in the EU, moreover, is currently greater than the demand. For the first time in many years, large volumes of sugar were offered for intervention in Europe in 2005 and a declassification of quota sugar has already been announced for This will increase pressure on prices in the European market and thus exert pressure on margins and the profitability of the sugar activities. Nevertheless, Suiker Unie turned in a good result, chiefly on account of efficiency gains. Production at one of the three sugar factories was terminated at the end of This substantially reduced costs and simultaneously increased productivity. Despite an increase in inulin sales, Sensus reported a slightly lower result owing to low fructose prices. Nedalco improved its turnover thanks in part to a modest recovery in selling prices in the alcohol market. Restrictions were also announced on high-volume alcohol imports into Europe and the growth of the bio-ethanol market had a positive impact on alcohol prices. Nedalco profited from these developments and strengthened its position in the traditional alcohol market by opening a new efficient factory in Sas van Gent and closing the factory in Delfzijl. The result was slightly better than in Aviko s result was disappointing. The combination of overcapacity in pre-fried products and a further decline in west European consumption exerted strong pressure on prices. The increase in raw material costs in the second half of the year could not be passed on in full to customers. The Compound ingredients activities realised the same result as in In the European fine bakery market, Unifine Food & Bake Ingredients (Unifine F&Bi) improvement measures led to a wider margin and growth in central and eastern Europe. The American activities increased their turnover and results. Unifine Sauces & Spices turnover was also higher; the result was the same as in SVZ s results excluding incidental items were lower on account of weaker prices but SVZ s sales again grew faster than the market average in all regions. Owing to the improvement in the average net debt position, interest payments were considerably lower in 2005 than in This was due chiefly to the sale of Advanta in 2004, which raised the result for 2004 to a record level. No participating interests were sold in As a result, the result for the year came to EUR 24 million, EUR 68 million lower than in Balance sheet Total assets were increased in 2005 by expenditure on tangible fixed assets and higher working capital. Group equity rose to EUR 546 million following the addition of the proposed retained result. The ratio of group equity to total assets based on group equity at year-end, the peak of the financing requirement, was unchanged at 45%.

6 Financial performance Cash flow Cash flow from operating activities amounted to EUR 10 million, EUR 96 million less than in 2004, chiefly on account of higher working capital and the payment of corporation tax. Cash flow from investing activities totalled EUR 101 million negative on account of substantial investments at Nedalco, Aviko and SVZ and a number of small acquisitions. Cash outflow from financing activities was nil. On balance, these cash flows resulted in a EUR 91 million reduction in cash. Sugar beet price The BMS price paid to growers for the sugar beet they supply is based on a price for quota beet (A/B beet) combined with a small percentage of non-quota beet (C beet). For the 2005 campaign, the price per tonne of BMS beet with average extractability and average sugar content was set at EUR excluding VAT (previous year: EUR per tonne). EU measures, chiefly the declassification of quota sugar and an additional production levy, reduced the BMS price by more than EUR The C beet price rose sharply to EUR (previous year: EUR 5.23). In comparison with the previous year, both the C beet price and the BMS price benefited from higher prices on the world sugar market. Sugar content and extractability were also excellent in As a result, the average sugar yield per hectare came to 11.2 tonnes (2004: 10.9 tonnes per hectare). The decline in the financial yield per hectare for the average Cosun grower was limited to about 5%. International Financial Reporting Standards International Financial Reporting Standards (IFRS) became compulsory for listed companies and financial institutions as of 1 January As an unlisted business, Cosun is not obliged to apply IFRS and has opted to continue applying Dutch financial reporting guidelines in the annual report and accounts. PROSPECTS A great deal of turbulence is expected on the sugar market in the first years of the new market organisation. The success of the European quota purchase scheme will also determine the pressure exerted on prices. EU levies will be very high in 2006 and subsequent years. As a result of this and the declassification announced for 2006, sugar results will be lower. The market for pre-fried potato products will remain difficult but the cost saving measures and the efficiency improvements brought about by targeted investments will make a positive contribution to the result. Cosun also expects the other activities to make a higher contribution to results in The sale of Custom Industries will produce a non-recurring gain. The result as a whole for 2006 is expected to be higher than that for No significant changes are expected in the number of employees in Investments will be considerably higher than depreciation, mainly on account of expansion investments at Nedalco. Longterm financing of ordinary activities is not expected to change substantially in the year ahead. STRATEGY & POLICY Cosun works in a dynamic environment in which the pace of change is accelerating. The demand side is dominated by highly critical consumers, concerns about health and food safety and pressure on prices and margins in the food industry. On the supply side, competition has increased in the European home market. The impact will be intensified by the expected fallout from the reorganisation of the common sugar market in mid and further liberalisation of world trade. Common sugar market organisation The current common organisation of the EU sugar market will end in July European agriculture ministers reached agreement in November 2005 on a new regulation for sugar production in Europe. Over the next four years, commencing in , the guaranteed intervention price for sugar will be reduced by 36% and that for sugar beet by 39%. At the same time, the volume of quota sugar produced in the European Union should be cut from 17.4 million tonnes to 12.4 million tonnes, and exports must be reduced in favour of higher imports. Production aid will be transformed into income support over a period of five years. Dutch farmers will receive compensation for loss of income equal to 60% in the first two years and 64.2% in the following years. These outcomes are frankly very disappointing and will have a grave impact on the incomes of our member beet growers and on the profitability of the sugar industry. 5 Annual Report 2005

7 Strategy & Policy 6 Annual Report 2005 Cosun, however, still sees opportunities for beet and sugar production in the Netherlands but the production chain s overall cost base will have to be cut further, at both the growers and the processors. This will inevitably lead to further declines in income and the disappearance of growers who do not have the requisite scale. Cosun s income from sugar will fall sharply in 2006 and subsequent years. The group has been preparing itself for these developments in recent years by seeking continuous efficiency gains in its factories and by diversifying its activities. Cosun s two sugar factories now rank among the most efficient in Europe. Strategy review In the light of these developments, in the first quarter of 2005 Cosun reviewed the group strategy it has been pursuing for the past five years. The strategy is founded on two pillars. The first is to consolidate the group s position in the sugar market and to enhance the efficiency of its sugar activities. The second is to increase income from non-sugar activities by strengthening Cosun s European position as a manufacturer of high quality natural ingredients and meal components for the food industry, the foodservice channel and the retail channel. To determine whether the group is on course, all activities have been critically reviewed as to their profitability and growth potential. Sharper profile We concluded that Cosun is on course: our portfolio of activities has a sharper focus and the profitability of the non-sugar activities has increased. But that is not enough. The new market organisation will have a negative impact on the turnover and profitability of the sugar activities and the current non-sugar activities will be unable to absorb all the decline in profit in the short term. The group has therefore tightened up its strategy even further. Cosun s strategic goals are: to protect the continuity of the Dutch cooperative sugar beet processing industry; to maintain the profit share for members, to be paid through either the members bonus in respect of beet prices or dividend in respect of shares; to remain more interesting to members than alternative investment opportunities by carrying out activities that have a higher profit potential. At operational level, this means: even greater priority for cost control and maintaining the market position, especially in sugar; growth in activities and products that have the greatest potential to make a healthy contribution to profits, such as potato products, bio-ethanol and Verifruit; a stronger market position and higher profits at Sensus, Unifine Food & Bake Ingredients, Unifine Sauces & Spices and SVZ s classic products. Cosun will realise this growth by consolidating its market position and through acquisition and organic growth. It will also study the growth potential of non-food products that are based on natural raw materials. In the short term, however, the increase in income from other activities will be inadequate to make up for the fall in income from the sugar activities. To enhance its core strengths, Cosun is embedding its knowhow and competences even more deeply into its centres of excellence to maximise the leverage for the various disciplines within the group and to deliver shared services in the fields of ICT, human resources, food safety and financing.

8 Know-how, people and the environment Cosun Food Technology Centre (CFTC) is Cosun s know-how and expertise centre for product development, process technology, analysis and research. It also has its own InfoCentre. CFTC is a shared R&D facility that serves all the Cosun business groups. It owes its existence to the paid demand from the Cosun businesses for both operational support and product and process innovation. RESEARCH & DEVELOPMENT Joint R&D offers significant scale and quality benefits. CFTC therefore plays an important role in securing, disseminating and optimising the know-how and experience present within Cosun. As part of the shift in Cosun s strategic focus, CFTC will concentrate more on process technology in general and separation techniques in particular. Several research laboratories were modernised and/or enlarged in 2005 and substantial investments were made in new equipment. New applications for secondary products CFTC is actively participating in a Cosun-wide study to determine how better use can be made of secondary product flows. It is studying the extraction of valuable substances from the residues remaining after fruit and vegetable processing and is identifying opportunities to use vegetable raw materials in non-food applications in a wide range of market sectors (e.g. chemicals and plastics). Fruitful cooperation For Suiker Unie, CFTC is studying new sweet concepts using combinations of sugar and other sweeteners. With Aviko, it is working on a new blanching method, for which a patent has been applied. Unifine F&Bi is interested in new decorative products based on sugar. In cooperation with SVZ, CFTC developed new varieties and applications of Verifruit. Another example of intensive cooperation between CFTC and the Cosun businesses is the flavours centre of excellence. This centre is part of the Unifine F&Bi organisation but is located within CFTC to facilitate the direct exchange of know-how and experience between CFTC s food experts and Unifine F&Bi s flavourists. A product developed especially for central and eastern Europe, AirCreme (a concentrated, vegetable-based cream), was well received in the market. CFTC also works closely with Solutia (Sensus business partner to market inulin for nonfood applications) and with potential customers. This recently led to Senter, the Dutch agency for sustainability and innovation, awarding a Eureka/TS subsidy for the further development of applications for use in detergents, cement, paper and water purification. Sharing know-how In 2005 CFTC held eagerly attended workshops on food law, food & health (obesity, glycaemic index) and sensory analysis. Sensus and Unifine F&Bi organised dedicated workshops for their international customers, with CFTC contributing its expertise. CFTC also contributed to the traditional internal courses on food technology for non-food technologists and Cosun in Focus. CFTC is increasingly acting as a breeding ground for R&D staff who progress into management positions in the Cosun businesses. It also assigns specialists to the businesses on a temporary basis. An additional advantage of this is that our people get to know each other better and know who to approach to share know-how and skills. SOURCE 7 Annual Report 2005

9 Know-how, people and the environment STAFF & ORGANISATION Cosun operates as a strategic holding company whose activities are decentralised to business groups responsible for their own operations, including the design and implementation of human resources policy. The corporate P&O department concentrates on a range of key tasks such as management development, coaching & training, management terms and conditions of service and the internal labour market. It also advises and supports the business groups P&O departments. P&O professionals within Cosun work together, for example on the P&O Platform, to exchange know-how and experience and, where possible, to purchase joint services, for instance from temporary employment agencies. They also coordinate supply and demand on the internal labour market. In addition to the customary palette of management courses, a media training course was offered in Towards the end of the year, a new generation of high potentials started the young management programme. This programme not only develops management talent but also fosters personal growth. The superhighway code To promote the responsible use of and the Internet, Cosun tightened up its code of conduct on communication via these media. The code is applicable to all members of staff both in the Netherlands and abroad. 8 Annual Report 2005 From work to work where possible Termination of production operations at the Puttershoek sugar factory was a major issue during the year. A retirement scheme for employees aged 55/58 and older and a transfer scheme for younger employees within the Suiker Unie/Sensus organisation avoided the need for forced redundancies and ensured that the knowledge and experience built up by the Puttershoek staff could be used elsewhere in the group. Staff were also transferred between other parts of the Cosun organisation. Some of the staff at SVZ s plant in Hien-Dodewaard (where production will be terminated in the course of 2006) were transferred to local Aviko companies. The total number of employees at Cosun increased on balance to 4,194 in 2005 (2004: 3,993) (average FTEs), the outcome of growth on the one hand and efficiency measures on the other. Consolidating know-how and experience Cosun s businesses continuously invest in the professional competences of their people. Internal training courses have the additional benefit of embedding and sharing existing knowhow. On the relocation of part of SVZ s production operations from Hien-Dodewaard to Poland, Polish operators were trained by their colleagues in Hien-Dodewaard. This testifies to both the fellowship and the loyalty of the staff.

10 Know-how, people and the environment THE ENVIRONMENT Cosun has published a separate report on its environmental policy since It provides an insight into all the business groups endeavours in the field of corporate sustainability. The environmental report can be downloaded from com. Emission trading introduced Several environmental issues were high on the agenda in One was the trade in emission rights. Suiker Unie, Sensus, Nedalco and Aviko had been granted CO 2 emission rights in 2004 (for the period ) and Cosun successfully traded its first rights in The allocation recognised the hard work the factories have put in over many years to save energy. To retain this position, alternative sustainable energy sources are being studied. Tare soil The sugar beet, chicory roots and potatoes transported to Cosun s production sites inevitably have soil attaching to them. Existing legislation and regulations significantly limit the ability to sell this tare soil. Although no environmentally-harmful substances are added at the production sites, part of the tare soil is classified as moderately polluted. In effect the current laws and rules do not provide for this type of soil. The applicable legislative framework is therefore difficult to implement and enforce, despite the introduction of supplementary regulations. Cosun believes beet and potato soil should be classified as agricultural soil that can be returned to farms provided the spread of diseases is avoided. Tare soil is also an excellent soil for sport fields and gardens in new housing developments. New legislation and regulations are being prepared for tare soil that should come into force in Cosun naturally attaches great importance to the environmentally responsible sale of tare soil. However, the existing restrictions and unnecessary costs should be eliminated. Tare soil has become a significant cost item and Cosun is therefore taking measures to reduce the volume at the growers and exploring other sales avenues. New Packaging Covenant A third important issue during the year was Packaging Covenant III, a covenant signed between industry and the government to reduce the volume of packaging materials that expired at the end of The covenant will not be renewed. Instead it will be replaced with a decree on packaging materials. Manufacturers and importers must ensure that the waste packaging materials that they introduced into the Dutch market are collected and separated. By themselves, individual companies cannot fulfil this obligation. As in the case of the Packaging Covenant, an implementing organisation will be set up that the packaging companies can join. Cosun is anticipating an increase in packaging expenses, in part because of the higher costs the implementing organisation will incur to comply with the decree. Groundwater extraction Cosun applied for a joint groundwater extraction permit for several of its subsidiaries in the province of North Brabant in 2005 so that Sensus can extract groundwater in Roosendaal. Sensus is currently having to rely in part on expensive drinking water for its production processes even though there is more than enough groundwater available at the site. The province has classified the project as an exemplary project and will use the findings as criteria when deciding whether or not to grant groundwater extraction permits. More waste prevention Environmental costs will remain a focal point in the future. Profitability, however, is coming under greater pressure. In this light and with a view to sustainable production, Cosun has launched a waste prevention programme. Environmental costs were defined in 2005 and a zero measurement will be made in It will be used to identify the return on environmental investments and operating expenses and thus further prevent products and manpower being wasted. 9SOURCE Annual Report 2005

11 Business groups Suiker Unie, Sensus, Nedalco, Aviko, Unifine Food & Bake Ingredients, Unifine Sauces & Spices and SVZ are the business groups through which Cosun serves the food market. SUIKER UNIE 10 Annual Report 2005 Suiker Unie, the largest sugar manufacturer in the Netherlands, faced strong pressure on its selling prices in The pressure was felt in all areas of the European sugar market and was due in part to the enlargement of the European Union. Enlargement and, in particular, the related sugar stocks depressed margins. The supermarket price war in the Netherlands also had a direct and indirect impact. The Slovenian sugar factory, TSO (majority interest), realised a lower result in 2005 than in 2004 owing to the impact of European raw material prices (for both sugar beet and unrefined raw sugar) following accession to the European Union in 2004 and to the direct negative impact on selling prices of imports from the Balkans. The company itself performed well but the scale of its operations is too small. The geographical sales position is also very disadvantageous. Limako, a trading house for C sugar on the world market, performed well. The large volume of C sugar to be exported from the 2005 campaign is providing a lot of work. The future functional organisation of Limako will be determined when the details of the new European sugar market are known. Oversupply There was an oversupply of quota sugar in the European Union in Production (within the European quota: especially Italy), imports from the Balkans and imports of mixes of sugar and other ingredients were higher than expected. European consumption was lower than forecast before the enlargement, especially in the new member states. This led to sugar market interventions in several EU countries. These market conditions in combination with the announcement of major changes in the market organisation, led to a sharp increase in competition in the Netherlands from domestic and foreign suppliers. The resultant pressure on prices was inevitably at the cost of profitability. A decision of the WTO panel will ban exports of C sugar to countries outside the EU as from May Together with the changes in the market organisation, this will probably reduce EU sugar production capacity by at least a quarter within four years. Even if alternative uses are found for C sugar, countries that have less efficient beet and sugar production industries will face closures. Efficient production The 2005 beet campaign was the first in which Cosun worked with two factories instead of three. As a result, the campaign lasted 112 days (previous campaign: 84 days with three factories). The factories in Groningen and Dinteloord processed all the sugar beet (3.8 million tonnes) without significant problems into 599,000 tonnes of sugar (2004: 648,000 tonnes). Both factories rank among the most efficient in Europe and set new production records in the 2005 campaign. This is the outcome of ongoing improvement programmes for production processes. Suiker Unie is accordingly well positioned to remain a competitive manufacturer in the new EU sugar market, even at the considerably lower selling prices that will apply in several years time. The price paid to members for beet with an average sugar content and average extractability was EUR per tonne (2004: EUR 59.14). The C beet price was EUR per tonne (2004: EUR 5.23). Far-reaching consequences of the new sugar market organisation The new sugar market organisation agreed at the end of November 2005 will come into force in July It will entail a 36% cut in the price of sugar within four years. A new but limited intervention mechanism will be in place during this transitional period. Sugar beet growers in the Netherlands will receive compensation (decoupled from production) for loss of income, equal to 60% of the fall in beet prices in the first two years and 64.2% in subsequent years up to 2015.

12 Business groups The feasibility of sugar beet farming in the Netherlands will become clear in the years ahead. There will be a reordering of beet growing areas in the European Union, and with it the location of sugar beet processing. The success of the restructuring (purchase scheme) will determine the efficiency of the surviving sugar chains. Through further quality and efficiency gains, it is thought that the Netherlands will be one of the countries to remain a sugar producer in the longer term but substantial progress still needs to be made in beet growing and transport. All beet growers that supply Suiker Unie have now been certified. SENSUS Sensus again reported an increase in its turnover and profit from inulin, although the rate of growth was lower than in Inulin as a growth market As a food ingredient, inulin is not covered by the European market organisation for sugar and therefore still has growth potential. Competition on the international market, however, is fierce despite the limited number of suppliers. In this expanding market, Sensus must maintain its margins by raising the efficiency of its production and the quality of services provided to existing and new customers. Liquid inulins are performing well in sales terms, especially in the dairy and beverage sectors. Inulin is used in products that help consumers control their weight. Sensus expects weight control to remain a hot issue throughout the world in the years ahead. Sensus has taken several initiatives to profile the use of inulin, including special seminars for customers on the glycaemic index (GI). Fructose Fructose production (2005/06 campaign: 25,000 tonnes) was down on the previous year owing to the smaller growing area under contract. The high restructuring charges and the fall in sugar prices due to the reordering of the sugar market mean it will no longer be profitable to sell fructose based on the 2006/07 and subsequent campaigns. Surrendering the fructose quota as part of the restructuring operation in 2006 is being considered. Sugar esters Sisterna (sugar esters) remains an interesting trading activity. Efficiency gains can be realised through cooperation with Sensus. An active marketing strategy, continued investment in the brand name and sophisticated logistics processes should lead to a further increase in sales. NEDALCO Prices in the European alcohol market have been under great pressure for several years owing to the oversupply caused in part by the substantial volume of imports. Investments on course Alcohol manufacturer Nedalco profited from an upward swing in selling prices in The gradual return to equilibrium in its sales markets in the course of the year had a positive impact on Nedalco s prices. A new alcohol factory was built and taken into operation in Sas van Gent during the year. The alcohol factory in Delfzijl was closed. Since the new factory uses a residue from the starch industry as its raw material, it was built in the industrial area in the Zeeland Flanders canal zone. The factory has a production capacity of 400,000 hectolitres, which will be used largely to serve Nedalco s established markets (particularly in the drinks, cosmetics and pharmaceuticals sectors). This investment has led to a substantial improvement in Nedalco s cost base and will thus make a structural contribution to the improvement in profitability. It has since been decided to build a new alcohol factory in Manchester (UK). This factory s design and capacity will be similar to those of the factory in Sas van Gent. The raw material will be sourced from a local starch factory. Progress in bio-ethanol Nedalco supplied its first alcohol for use as an additive to engine fuel in the Netherlands and abroad during the year. The alcohol was produced at Nedalco s existing production facilities. The Dutch government announced a one-year tax incentive for 2006 to encourage the use of bio-fuels in the Netherlands subject to the framework of EU directives. It is thought that the use of bio-ethanol additives in traditional engine fuels will be compulsory as from This measure, which has already been announced for 2007, will bring the development of biofuels in the Netherlands significantly closer and more in line with developments that have already taken place in several other European countries. In view of these prospects, Nedalco will continue its preparations to scale up its operations in the European bio-ethanol market while consolidating its current positions in the traditional alcohol market. DEVELOPMENT 11 Annual Report 2005

13 Business groups 12 Annual Report 2005 During the year Nedalco completed the divestment of its Orbat subsidiary in Italy. The local commercial activities had already been wound down because there had been little prospect of a satisfactory profit. Another use is being sought for the Orbat site. AVIKO Aviko, a manufacturer of prepared potato products, had a difficult year. In a slightly weaker market, sales increased by 3% but turnover and results were depressed by tighter margins. The combination of overcapacity in pre-fried products and a further decline in west European consumption exerted strong pressure on prices. The impact was intensified by the abundant potato harvest in Raw material prices were accordingly low in the first half of the year. They rose sharply in summer 2005 but the cost increase could not be passed on in full to customers. New products in the chilled segment realised healthy growth. Aviko also increased its sales in central, southern and eastern Europe. Margins are expected to improve in 2004, chiefly on account of the improved raw material market. Furthermore, Aviko will continue to target cost savings and efficiency gains. Focus on growth and cost reduction Aviko is pursuing a growth strategy aimed at increasing its share of the European market. The company has identified organic growth opportunities that will build on product innovation. Further growth will be sought through acquisitions. The market in central and eastern Europe offers interesting growth opportunities. Aviko s ultra-modern factory in southern Germany is strategically located to serve both these growth areas and the south European markets. Sales opportunities for dried products outside Europe will be studied in To support Aviko s growth ambitions, substantial investments have been planned in new equipment at the plants in Steenderen, Cuijk and Venray. Other planned investments are targeted at further cost savings. European market leader in granules The acquisition of Nestlé s potato granule factory in Venray has considerably strengthened Aviko Rixona s position in the foodservice market. Aviko had already established a good position in the industrial market and the company has now gained market leadership in potato granules. Unbundling the business acquired from the Nestlé organisation and amalgamating it into Aviko Rixona was completed without significant problems. Aviko Rixona will continue to make potato granules, including mashed potato, for Nestlé s Maggi brand. This provides a solid foundation and a springboard for further growth. Success in chilled products and product innovation Aviko pays a great deal of attention to the development of new product concepts and product innovations. A fifth of turnover is now generated by products and innovations that were launched in the past few years. This underlines the success of Aviko s policy in this area. Aviko booked excellent results in the chilled segment. The upward trend in chilled specialities shows no sign of slowing. The fresh steamed concept is a success, especially in the foodservice market. It fits in with the trend for convenient and healthy meals. The method ensures that the potatoes retain as many vitamins and minerals as possible. The introduction of this product line with the teaser selected (to bake, boil, fry, mash and roast) has considerably strengthened Aviko s position as a one-stop supplier in the foodservice market. As a result, sales of vacuum-packed products have also increased. In the pre-fried chips market, Aviko introduced a number of new products, including Flavourites and Fridéale. Flavourites are chipped potatoes with a herb coating that does away with the need for mayonnaise or other sauces. Thanks to a special coating, Fridéale absorb 33% less fat when fried. They are the first deep-fried chips to contain as little as 7% fat and therefore fewer calories per portion. Aviko s efforts have not gone unrewarded. In January 2006 it received the Industributie Trophy in the deep freeze category.

14 Business groups Forage Sales of animal feed were concentrated in the specialised company Duynie in This company now also sells the beet pulp and pellets produced by Suiker Unie during the campaigns. The new Nijmidon operation has been processing starch residues for use in non-food applications in, for example, the paper industry since UNIFINE FOOD & BAKE INGREDIENTS Unifine F&Bi again performed better in 2005 than in the previous year. In recent years, the company has suffered from disappointing turnover and profits chiefly because of problems at the production facilities. The problems now seem to have been solved and there is again potential for growth. Top three in Europe Unifine F&Bi s goal is to become a leading manufacturer of fine bakery ingredients in the European market. Its ambitions are reflected in a series of activities to target growth and optimise the operations. Growth perspectives The west European market is still showing signs of consolidation and prices are under pressure. Turnover was slightly higher in France is now beginning to develop and the activities in Germany, the Netherlands, Spain and Portugal are performing well. The main growth drivers in western Europe will be the industrial market and innovations. A series of new account teams was set up and trained in the past year. In addition, Unifine F&Bi invested in several highly promising innovative projects. Central and eastern Europe offer many growth perspectives. A new product, AirCreme (a concentrated vegetable-based cream), was successfully introduced for the east European market during the past year. The new sales office in Moscow is also proving its worth, as evidenced by the increase in sales in this market. Exports to markets outside the European Union are making good progress, especially in Asia. In general, these markets too are displaying strong demand for healthier high quality products containing fruit and functional ingredients. Innovative marketing for bakers Unifine s standard range comprises some 300 articles, 20% of them being fast movers accounting for 80% of turnover by volume and the other 80% being slow movers. To improve profitability in this market, Unifine F&Bi developed an innovative concept under the name Orange Box. It comprises an interactive Customer Relationship Management programme including a webshop where traditional bakers can place their orders 24 hours a day, seven days a week, and a new logistics concept. Orders placed via the webshop and those placed with wholesalers are broken down immediately into fast movers and slow movers known as the Orange Box articles. The wholesalers prepare a pallet with the orders for the fast movers that they keep in stock. The slow movers are packed in the Orange Box at the factory in Manage, Belgium, and placed on the pallet at the wholesaler within 24 hours. The customer thus benefits from the short delivery time for the whole order. Optimising the operations The growth ambition was just one of the reasons to study various aspects of the operations in Analyses were made of the composition of the product range, stock management, internal logistics and planning. The results were used to streamline the range, focus sales efforts on the most interesting segments of the European market and to optimise deliveries, in part by increasing wholesale supplies. The procurement policy was also put on a more European footing and the number of suppliers will be significantly reduced. By giving priority to the most profitable product/market combinations, Unifine F&Bi hopes to achieve its ambition of becoming one of the top three European players in its market. Cooperation and sustainability Unifine F&Bi works with CFTC in the flavours centre of excellence and on the development of new products. Cooperation with SVZ (fruit) and Unifine Sauces & Spices (savoury products) is geared to both product development and marketing. Food safety and corporate sustainability are also high on the agenda at Unifine F&Bi. In the light of customer expectations, corporate sustainability is expected to develop into an important source of added value. Corporate sustainability also extends to good working conditions and training opportunities. INDUSTRIAL 13 Annual Report 2005

15 Business groups 14 Annual Report 2005 UNIFINE SAUCES & SPICES Unifine Sauces & Spices, a specialist in sauces, marinades, dressings, spices, seasonings and coatings, increased its turnover during the year and reported the same result as in Three years of restructuring and investment have laid a solid foundation for further growth. The standard range has been rationalised and the factories have been modernised to raise the efficiency of product flows and stock management, and enhance the quality of the production environment. New products were also successfully introduced. Fast food: a rapid grower with specific demands The fast food sector is growing rapidly. Salads and sandwiches are replacing burgers, fries and pizzas and the market for sauces, including salad dressings and sandwich spreads, is expanding. The saté sauce dispenser has been a resounding success in this market and has boosted sales of saté sauce. Through improved control of the sourcing of peanuts and of the production process, the taste and consistency of Wyko s saté sauce is further improved. Sales through fast food chains are growing but require more pro-active product development as menu cycles become increasingly shorter. Unifine is responding to this trend with success, both through menu engineering in the Kookuni and through a number of specifically developed packaging and menu concepts for sauces, such as special portions for pizza restaurants and sandwich bars. The factory in Nijkerk is designed to produce a wide range of sauces in both large and small quantities. Unifine goes to great lengths to meet the high demands that international quick service restaurant chains make on suppliers. Specific demands are made on the development of taste concepts, supply reliability, flexibility, product quality and food safety. The Wykomatic dispenser for cold sauces such as mayonnaise and ketchup was introduced in January A distinctive feature of this product is its extremely convenient design to optimise food safety and hygiene. Own brands gaining ground Own brands are gaining ever more ground in the retail sector. Retail chains are seeking reliable partners to produce their private label articles. This offers opportunities to Unifine. The factory in Nijkerk is producing and packing more articles on behalf of leading brands and own brand manufacturers. To this end, a separate department was set up for glass lines last year. Consolidation in a contracting market Degens, the brand for traditional butchers, maintained its position in a contracting market, one in which the number of independent butchers declines every year. Sales to large-scale meat packers are still small. The organisation and the product portfolio were strengthened in order to expand in this sector in In the snack industry (crisps, peanuts) customers constantly demand new taste concepts and spicy coatings for their products. Snack consumption is coming under pressure in western Europe (especially as concerns about obesity grow) but is catching up rapidly in eastern Europe. Selective growth Unifine Sauces & Spices has identified excellent growth opportunities in the foodservice market, in which it works actively with Aviko. By supplying international quick service restaurant chains, the company is also growing internationally. In addition to foodservice (chiefly sauces), Unifine is seeking growth in the production and sale of dried spices and spice mixes (ingredients). In western Europe it is acquiring herb rooms from food companies and in eastern Europe it is actively following food companies as they move their operations eastwards. Unifine stands out in the ingredients market because it buys all its spices at source and then cleans, sterilises and processes them in its own mixes. Closer to the customer Unifine has positioned its commercial organisation closer to its markets by defining seven product/market combinations (PMCs): single herbs and spices, blends for meat & convenience, blends for snacks, traditional butchers (Degens), foodservice Benelux (Wyko), foodservice Europe (quick service restaurants), private label sauces for the international food industry and retail. A manager specialised in the relevant market has been appointed for each PMC. Against this background, new people with commercial skills were recruited in 2005 and investments were made in dedicated professional training courses.

16 Business groups SVZ 2005 was a good year for SVZ, a supplier of fruit and vegetable ingredients to the food industry, SVZ s sales grew above the market average in all regions. Only in Europe was profit at a slightly lower level on account of lower prices. The investment in a sales office in Moscow increased sales in eastern Europe and the Russian Federation. In Japan, too, SVZ performed well. NetraAgro s trading activities turned in a higher profit on stable turnover. The operation in the United States, which produces and sells chiefly concentrates, achieved both a higher turnover and a significant improvement in its profit. Well positioned in the market On the supply side, poor fruit harvests drove prices slightly higher. On the demand side, prices came under pressure from further consolidation in the distribution chain. Smaller suppliers are facing difficulties owing to overcapacity and stricter food safety requirements. As a global player, SVZ has the scale necessary to operate in this market. The strength of its position reflects the reorganisation of its European infrastructure that began in SVZ will retain and strengthen its competitiveness by processing fruit preferably in the region in which it is grown. To achieve this, it has invested in the production of aseptic puree in Spain and transferred production of concentrate from Hien- Dodewaard to Poland, where a new concentrate factory has been built. The compound and aseptic activities in Hien-Dodewaard will be moved to Etten-Leur at the end of A new factory will be built in Etten-Leur in 2006 to house all puree production (aseptic and frozen) and all compound production. The plans for 2006 also include an investment in production capacity in Serbia, which will complete the reorganisation of the European production structure. Outside Europe, SVZ will further extend its partnerships in South America and China. Focus on added value In addition to its classic products such as concentrates, SVZ is focusing more on compounds (multifruit) and specialities such as Verifruit (infused fruit) that have higher added value. Developing more bespoke fruit and vegetable applications in cooperation with customers is growing in importance. Fruit products are an excellent component in the current trend for healthy eating. Sales of Verifruit are expected to double in 2006 in comparison with Verifruit is sold chiefly in the ice cream market but variations are also excellent for use in cereals and dry snacks such as fruit bars. With this in mind, the site in Etten-Leur has increased production capacity for Verifruit. Together with CFTC, SVZ is working on the further development of the process technology for Verifruit. INDUSTRIAL 15 Annual Report 2005

17 Management matters Cosun recognises the importance of striking a balance between the potentially divergent interests of the group and all its stakeholders. Basic principles and codes of conduct are set out in various regulations. RISK PROFILE & RISK MANAGEMENT 16 Annual Report 2005 Like every other business, Cosun is exposed to a range of commercial, technical and financial risks that are inherent in its activities. Cosun s policy is to mitigate these risks by means of targeted product/market combinations, a flat organisational structure and a sharp focus on cooperation with customers and suppliers and among the Cosun businesses themselves. Commercial risks Sugar market Changes in the EU sugar market organisation will result in a fall in beet and sugar prices and possible quotas as from mid It will no longer be possible to absorb the consequences through gradual efficiency measures. The measures Cosun is taking are explained in the Strategy & policy section of this report. The changes in the market organisation will accelerate the existing trends of greater competition and deregionalisation in the EU sugar market. Consumer behaviour Consumer expenditure patterns are still being driven by price awareness. As a result, margins in the chain are under pressure. Greater awareness of obesity and health concerns are changing consumer preferences. Cosun is responding by extending its product range and participating in public information campaigns. Technical risks Weather influences Owing to the nature and location of production, Cosun s results are influenced heavily by the weather. Cosun matches its operations to climate conditions and spreads the harvests over as many different countries and regions as possible. Contracts with growers take account of the risk of poor harvests where necessary. Owing to the limited geographical spread, this harvesting risk is particularly relevant to potatoes, sugar beet and chicory. Raw materials The quality of raw materials, principally sugar beet, chicory, spices, fruit, vegetables and potatoes, has a significant influence on Cosun s processing and production operations. Informing and advising potato, sugar beet and chicory growers in detail about efficient production methods and basing the payment system on quality improves the standard of the raw materials and maximises the return. All Cosun businesses that produce food ingredients and foodstuffs work in accordance with HACCP procedures. Industrial customers are making increasingly stricter demands on the traceability of their ingredients. This means more attention has to be paid to the upstream end of the chain and the links are becoming more intertwined. Financial risks Position risk The purchase of many farm products directly from the source in a short period of time might create a mismatch between the purchasing position and the selling position, especially at Aviko and SVZ. Where possible, Aviko and SVZ balance their purchasing and selling positions in raw materials and end products. Nevertheless, there is an exposure to price risk, particularly at Aviko, where low potato prices eventually have a delayed adverse impact on margins. The attendant risks are controlled by means of good reporting and control procedures and the direct involvement of senior group management.

18 Management matters Financing and interest rate risks The structural financing requirement is covered by longterm fixed-rate loans with terms of between about five and thirteen years. To meet the sugar campaign s cyclical financing requirement, Cosun has concluded a special financing arrangement. Exchange rate risks Although Cosun is active chiefly in the euro region, as an international business it is exposed to exchange rate risks. These risks are concentrated around the US dollar and the pound sterling. In principle, exchange rate risks arising on operating and financing activities are hedged. Product liability As a producer of food ingredients, Cosun recognises the risks of product liability, An integrated framework of quality control, safety and traceability systems is in place to limit the risks. Procedures have been introduced within the organisation to ensure a fast and appropriate response when circumstances require. Adequate insurance has been taken out to cover the risk of product liability. Internal control system Cosun has an internal control system to control the risks attaching to the business activities and to monitor the efficiency and effectiveness of business processes, including administrative processes. The business groups themselves have primary responsibility for the control system. Group responsibility is laid down in the following framework: All business groups draw up three-year operating plans. The plan for the next year is used to test actual monthly and quarterly results. The results are discussed on a monthly basis at Executive Board level and on a quarterly basis at Board and Supervisory Board level. Detecting and pro-actively responding to risks is part of the operational planning procedure, The main risks and action plans are identified and reported upon every five years or so. The last time that this was done was in The business groups financial managers report functionally to the finance & control director. Cosun s risk management policy is implemented by the Executive Board. Cosun s finance & control manual includes detailed guidelines on financial reporting and administrative organisation that incorporates a section on risk control. The external auditor conducts an annual audit in order to express an opinion on the annual accounts. The external auditor is appointed by and reports to the Supervisory Board. The audit scope and depth are determined annually in consultation with the Executive Board, whereby the minimum work required for the audit opinion is extended to cover specific risks, business processes or locations that the Supervisory Board or the Executive Board believes should receive additional attention. Recommendations arising at every level from the external audit are reported to and followed up by the Executive Board. The Executive Board subsequently reports to the Board and the Supervisory Board. CORPORATE GOVERNANCE Koninklijke Coöperatie Cosun U.A. is a cooperative with excluded liability under Dutch law. It has approximately 10,500 sugar beet growers as its direct and indirect members. These members have an active influence on Cosun s policy. Each member has one vote in the district meetings regardless of the volume of sugar beet supplied. To Cosun, corporate governance is concerned with the relationships between the members of the cooperative, the Board, the Supervisory Board, the Executive Board and the staff. The main elements in Cosun s corporate governance policy are sound business principles, integrity, respect, supervision, transparent reporting and accountability. Cosun has adopted the Dutch Corporate Governance Code published by the Corporate Governance Committee on 9 December 2003 even though a large number of its provisions do not apply directly to Cosun on account of its special position as a cooperative. Cosun has drawn up several regulations to provide a framework for the performance of its various bodies and the rules applicable within Cosun. Information on the administrative bodies, regulations and the Code of Conduct applicable to Cosun s staff can be found on the website at com under Corporate governance. The regulations are checked and revised as necessary from time to time. The members of the administrative bodies and the Central Works Council are presented on page 20 and 21 of this report and on the website. COMMERCIAL 17 Annual Report 2005

19 Management matters COOPERATIVE ISSUES The main issues within the cooperative in 2005 were the proposals for the new sugar market organisation and the future of Cosun. The run-up to the negotiations that led to a new European sugar market organisation demanded a great deal of time and energy from all levels of the cooperative. In close cooperation with other parties, an alternative was drawn up to the plans put forward by European Commissioner Mariann Fischer Boel (the Better Plan ). Many regional initiatives were taken to draw the attention of provincial authorities and the mainstream media to the issue. Mass demonstrations were held in The Hague and Brussels. The sugar industry also highlighted its position through radio and television interviews. Towards the end of the year, some 15,000 signatures had been collected to show the strength of the Dutch sugar industry s feelings. The outcome of the negotiation of a new sugar market organisation until is a disappointment to the European sugar industry. Cosun and its member sugar beet growers will have to accept lower results on their products despite all their efforts to reduce costs further and improve crop and processing yields. group strategy for and the delivery conditions for the 2006 beet campaign. The cooperative s Youth Council organised a wide range of activities in Representatives of this breeding ground for management talent raised a variety of issues in the Members Council and held a special meeting to discuss the proposed introduction of new delivery conditions as from At the beginning of April a special debate was organised for young beet growers at which Dutch agriculture minister, Cees Veerman, was a guest speaker. On behalf of the Board, On behalf of the Executive Board, J.E.M. van Campen, Chairman C.J. Menkhorst, President & CEO Breda, 15 March Annual Report 2005 Administrative affairs The districts were reorganised and reduced in number from 18 to 10 in spring This figure includes the two regional cooperatives, CSV and COVAS. This reduction was the final act in the process of renewing the cooperative s administrative structure that began two years ago. To keep contacts with the members at the required level, the former districts will remain active as sections within the new, larger districts. Cosun will continue to present and explain its annual results in all 18 sections in the future. Fewer districts means fewer district committee members and the number of Members Council members declined from 104 to 60. The Members Council met on five occasions in 2005, three of which had been scheduled. During the meeting held at the end of May, the cooperative bade farewell to its secretary, Wytze Dijkstra. He has been succeeded by Jan Willem van Roessel. Mr P. Maaskant stood down from the Supervisory Board in May 2005 and was succeeded by Mr N. van Halder. An additional meeting was convened in August to discuss the status of the new sugar market organisation. The new market organisation was also discussed and explained at a special meeting held in mid-december. Other issues that were considered included the

20 MEMBERS AND SHARES PER DISTRICT The fall in the number of arable farms has also had consequences for the number of members, which has declined in recent years. The number of districts has been reduced to ten. Some of the new districts are made up of sections. 31 December December 2004 Section/District Members* Shares Members* Shares Zeeuwsch-Vlaanderen 741 6, ,684 Zeeland-Midden 590 5, ,577 Zeeland-Noord 372 4, ,140 Goeree-Overflakkee 275 2, ,027 West-Brabant-Noord 634 6, ,168 West-Brabant-Zuid 343 2, ,215 Zuid-Hollandse-Eilanden 364 4, ,113 Holland-Midden 260 4, ,218 Kop van Noord-Holland 477 7, ,195 Oostelijk Flevoland 420 8, ,876 Noordoostpolder 505 6, ,993 Friesland 269 3, ,467 Groningen 720 9, , Annual Report 2005 Drenthe/Overijssel-Noord 650 9, ,465 Overijssel-Zuid/Gelderland 481 3, ,076 Limburg 1 20, ,000 Oost-Brabant 1 10, ,082 Zuidelijk Flevoland 126 3, , , ,247 7, ,705 A and C members as defined in Article 4 of the Articles of Association. The number of B members in 2005 was 3,181 (2004: 3,411).

21 BOARD, SUPERVISORY BOARD, EXECUTIVE BOARD AND CENTRAL WORKS COUNCIL As at 31 December 2005 Board Chairman Vice-Chairman Deputy Vice-Chairman Members Secretary J.E.M. van Campen, Kraggenburg G.M. van Tilburg, Bant I.L.G. van Melle, Schoten (B) J.M. Klompe, Wolphaartsdijk D.H. de Lugt, De Cocksdorp J.M.M. Megens, Driebergen Ms G. Prins, Nieuwkoop J.A. Smid, Dalerpeel T. van der Torren, Waddinxveen J.W.M.J. van Roessel 20 Annual Report 2005 Supervisory Board Chairman Secretary Members Executive Board President & CEO Members Secretary B.G.W. Vervoort, Lottum C.E.M. de Waal, Roermond N.H. van Halder, Tilburg C. van Hilten, Zoelen F. Wiersema, Spijk W. van der Zee, Zaamslag C.J. Menkhorst S.A. Brandsma, group director Unifine F&Bi J.W. Gerritsen, group director Aviko W.C.J. van Noort, group director Unifine Sauces & Spices G.H. de Raaff, group director Corporate Development A. Roberti, group director Suiker Unie R.P. Smith, group director Finance & Control M.J.M. van de Ven, group director SVZ Ms M.J.C.W. van den Maagdenberg

22 Central Works Council Chairman D.A. Tolenaars SVZ Secretary Ms I. Raven Unifine Sauces & Spices Members vacancy Suiker Unie J.P. Blaauwhoed Cosun (CFTC) G. Bottema Aviko (Rixona) A. Jansen Suiker Unie P. Hen Aviko (De Fritesspecialist) R. Kalwij Cosun G. Mijnen Aviko (Steenderen) C.J. Rommers SVZ M.J. Vries Suiker Unie P. Izelaar Unifine Sauces & Spices 21 Annual Report 2005

23 Report of the Supervisory Board To the members of the Members Council of Koninklijke Coöperatie Cosun U.A., Breda, Pursuant to Article 31, paragraph 4, of the Articles of Association, the Supervisory Board has examined the annual accounts of Koninklijke Coöperatie Cosun U.A. for In this examination, the Supervisory Board was assisted by the auditors appointed by it, whose report on the accounts is included in the section Other information. The Supervisory Board recommends that the Members Council approve the accounts. On behalf of the Supervisory Board, B.G.W. Vervoort C.E.M. de Waal Breda, 16 March Annual Report 2005

24 Annual Accounts

25 Consolidated balance sheet (before profit appropriation; in EUR millions) At year-end Note ASSETS FIXED ASSETS Intangible fixed assets (1) Tangible fixed assets (2) Financial fixed assets (3) * CURRENT ASSETS Stocks (4) Debtors, prepayments and accrued income (5) Cash (6) * , ,244.7 EQUITY AND LIABILITIES 24 GROUP EQUITY Capital and reserves (7) Minority interests (8) PROVISIONS (9) * * LONG-TERM LIABILITIES (10) CURRENT LIABILITIES (11) Credit institutions and liabilities with a financing character Current liabilities, accruals and deferred liabilities * , ,244.7 *) Figures for 2004 have been restated for comparative purposes, see note on page 28.

26 Consolidated profit and loss account (in EUR millions) For the financial year Note NET TURNOVER (14) 1,338.5) 1,317.3) Movements in stocks of finished goods Other operating income (15) (3.2) 12.6) 9.8*) 28.6) TOTAL OPERATING INCOME 1,347.9) 1,355.7) EU levies (16) Cost of raw materials and consumables (17) Cost of work subcontracted and other external charges (18) Staff costs (19) Depreciation and amortisation Impairments in value of intangible and tangible fixed assets (21) Other operating expenses 36.5) 789.9) 229.3) 184.5) 57.4) 3.4) (6.4) 26.4) 804.6*) 208.2*) 217.6) 65.6) 51.5) 7.1*) TOTAL OPERATING EXPENSES 1,294.6) 1,381.0) OPERATING PROFIT (LOSS) 53.3) (25.3) Interest and similar income Interest and similar charges 12.1) (22.0) 4.3) (22.4) 25 FINANCIAL INCOME AND EXPENSE (22) RESULT ON ORDINARY ACTIVITIES BEFORE TAXATION (9.9) 43.4) (18.1) (43.4) Taxation (23) Share in results from participating interests (12.1) (7.5) 22.5*) 110.6) RESULT ON ORDINARY ACTIVITIES AFTER TAXATION Minority interests 23.8) 0.2) 89.7) 2.6) RESULT FOR THE YEAR 24.0) 92.3) *) Figures for 2004 have been restated for comparative purposes, see note on page 28.

27 Consolidated cash flow statement (in EUR millions) Operating profit (loss) Depreciation and amortisation Impairments Movement in provisions Result on sale of participating interests and tangible fixed assets Other movements in participating interests Movement in working capital (excluding cash and short-term bank credit) 53.3) 57.4) 2.6) 5.5) (0.4) (6.9) (76.0) (25.3)* 65.6) 51.5) 35.3*) (18.3) 5.9*) CASH FLOW FROM BUSINESS OPERATIONS 35.5) 114.7) Dividends received Net interest paid Taxation on profit (paid) received Other movements ) (9.9) (15.1) (0.5) 0.4) (20.2) 10.1) 0.9) (25.5) (8.8) CASH FLOW FROM OPERATING ACTIVITIES 10.0) 105.9) 26 Investments in intangible and tangible fixed assets Proceeds from the sale of tangible fixed assets Other movements in financial fixed assets Movement in minority interests Acquisitions of participating interests Divestment of participating interests (93.0) 3.5) (0.4) (10.7) ) (65.4) 1.9) 0.2*) (1.7) (33.1) 262.9) CASH FLOW FROM INVESTING ACTIVITIES (100.6) 164.8) Share movements Gross distribution under the Sugar Beet Delivery Payment Regulations Increase in long-term receivables Increase in short-term interest-bearing receivables Decrease in long-term liabilities Increase/decrease in short-term liabilities to credit institutions and liabilities with a financing character ) (3.1) (0.5) (7.6) (10.2) 21.2) 0.1) (4.9) (20.0) (43.8) (135.5) CASH FLOW FROM FINANCING ACTIVITIES (0.2) (204.1) NET INCREASE/DECREASE IN CASH (90.8) 66.6) *) Figures for 2004 have been restated for comparative purposes, see note on page 28.

28 Consolidated statement of recognised income and expenses (in EUR millions) RESULT FOR THE YEAR 24.0) 92.3) Translation differences on foreign participating interests Revaluation reserve Release revaluation reserve to profit and loss account TOTAL DIRECT MOVEMENTS IN CAPITAL AND RESERVES 3.2) 5.4) (1.7) 6.9) 2.9) ) 2.9) Change in accounting for sugar stock Change in accounting for pensions and other deferred employee benefits TOTAL ACCUMULATED EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES ) (22.0) (22.0) (17.0) ) (17.0) TOTAL RESULT RECOGNISED BY COSUN 8.9) 78.2) 27

29 Notes to the consolidated annual accounts (in EUR millions) GENERAL Koninklijke Coöperatie Cosun U.A. ( Cosun ), registered in Breda, the Netherlands, produces and sells natural ingredients for the international food industry, foodservice channel (restaurants, caterers and wholesalers) and retail outlets. Its activities are organised into three groups: Basic ingredients, including sugar, industrial alcohol, inulin and fructose (Suiker Unie, Royal Nedalco and Sensus). Potato products, including chilled, frozen and dried potato products and a wide range of other prepared potato specialities (Aviko). Compound ingredients, including fine bakery specialities, sauces, marinades, dressings, toppings, spices, mixes and fruit & vegetable applications (Unifine Food & Bake Ingredients, Unifine Sauces & Spices and SVZ). Applicable standards The annual accounts have been prepared in accordance with the legal requirements as set out in Part 9, Book 2, of the Dutch Civil Code. The cooperative profit and loss account is prepared in accordance with the exemption permitted under Article 402, Book 2, of the Dutch Civil Code. Comparative figures For comparative purposes, a number of items in the 2004 profit and loss account have been reclassified. Furthermore, 2004 figures have been restated for a change in the accounting principles for the sugar stock. The following changes have been made in the profit and loss account: 28 Movements in stocks of finished goods Cost of raw materials and consumables Cost of work subcontracted and other external charges Other operating expenses Taxation 2004 annual accounts 29.3) (782.5) (117.2) (108.8) 13.5) Reclassification ) (22.1) (79.6) 101.7) ) Change in accounting principles (19.5) ) (11.4) ) 9.0) Comparative 2004 figures 9.8) (804.6) (208.2) (7.1) 22.5) TOTAL (21.9) Consolidation principles The consolidated accounts comprise the financial information of Cosun and the group companies over which it can exercise direct and indirect control or that it manages on a unified basis. Group companies acquired during the year are included as from the date upon which direct and indirect control can be exercised over business and financial policy. The results of group companies sold during the year are recognised up to the date of divestment. Intercompany payables, receivables and transactions, as well as profits made within the group, are eliminated in the consolidated accounts. Group companies are consolidated in full, with minority interests held by third parties being disclosed separately. Joint ventures are consolidated on a proportional basis. In accordance with Articles 379 and 414, Book 2, of the Dutch Civil Code, a list of group companies and other participating interests has been filed with the Chamber of Commerce in Breda, the Netherlands. That list forms part of these annual accounts. ACQUISITIONS AND DIVESTMENTS Aviko strengthened its position in potato flakes and granules through the acquisition of the Nestlé activities in Venray as of 31 January There were no significant divestments in In February 2004 the assets and liabilities of the permanent establishment Unifine Richardson in Canada had been divested; the 50% interest in Advanta had been divested in September 2004.

30 ACCOUNTING PRINCIPLES General The annual accounts have been prepared under the historical cost convention. All assets and liabilities are stated at face value unless indicated otherwise. Income and expense items are recognised in the year in which they are earned or incurred. Translation of foreign currencies The reporting currency for Cosun s annual accounts is the euro (EUR). Income and expense items arising from transactions in foreign currencies and the non-monetary balance sheet items and monetary amounts payable and receivable of foreign participating interests are translated at the rates of exchange ruling at transaction date or balance sheet date respectively. Exchange gains and losses are taken to the profit and loss account. All balance sheet items of foreign participating interests denominated in foreign currencies are translated at the rates ruling at balance sheet date. Items in the profit and loss accounts of foreign participating interests are translated at the rates ruling at transaction date. Translation gains and losses are taken directly to the statutory reserve for exchange differences in Cosun s capital and reserves, net of taxation where applicable. Exchange differences on the long-term financing of foreign participating interests and on financial instruments contracted to hedge their exchange rate risks are treated in a similar manner. Changes in accounting principles Accounting for sugar stock Until 1 January 2005 sugar subject to the EU market organisation and owned by the cooperative (included in stocks of finished goods) were valued at the lower of intervention price and realisable value at balance sheet date. In addition, an accrued liability had been included in the item accruals and deferred income in respect of the sugar beet campaign. In accordance with international practice in the industry, it has been decided to value sugar subject to the EU market organisation and owned by the cooperative at cost of production. In consequence, the accrual formed for the beet campaign is no longer recognised. The 2004 profit and loss account has been restated for comparative purposes. As a result, the comparative operating profit is EUR 30.9 million lower and the result for the year EUR 21.9 million lower than disclosed in the 2004 accounts. Capital and reserves were EUR 17.0 million lower than at 1 January Accounting for pensions and other deferred employee benefits The revised Guideline for Annual Reporting in respect of employee benefits (RJ 271) has been applied with effect from 1 January The difference between the net obligation for pensions and other deferred employee benefits calculated in accordance with the revised RJ 271 and the obligations calculated in accordance with the previous Guideline has been treated as a change in accounting principles without restatement of comparative figures, which is in accordance with RJ 271. The difference has been recognised in capital and reserves at 1 January 2005 and amounts to EUR 22.0 million negative. 29 Intangible fixed assets Goodwill arising on the acquisition of participating interests (share or asset/liability transactions) represents the positive difference between acquisition cost and net asset value based on Cosun s accounting principles at the date of acquisition. Goodwill purchased on the acquisition of foreign group companies and participating interests is translated at the rates ruling at the date of acquisition. Capitalised goodwill is amortised on a straight-line basis over expected useful life, with a maximum of 20 years. Tangible fixed assets Land and buildings, machinery and equipment, other tangible fixed assets, prepayments and in production are stated at cost of acquisition or manufacture less accumulated depreciation. Subsidies and investment grants are deducted from the cost of the assets to which they relate. Depreciation is charged as a percentage of cost of acquisition or manufacture on a straight-line basis over the assets economic lives. Land, prepayments and work in progress are not depreciated. Maintenance expenditure is capitalised only insofar as it increases the life of the asset.

31 Financial fixed assets Where significant influence is exercised over business and financial policy, participating interests are stated at net asset value calculated in accordance with Cosun s accounting principles. Where no significant influence is exercised, participating interests are stated at the lower of cost and equity value. Impairment of fixed assets Cosun accounts for intangible, tangible and financial fixed assets in accordance with accounting principles generally accepted in the Netherlands. In accordance with these principles, assets with a long life are reviewed as to their impairment if changes or circumstances indicate that their book value will not be recovered. The recoverable amount of an asset used in the production process is determined by comparing its book value with the present value of the future net cash flows the asset is expected to generate. If the asset s book value is higher than the present value of estimated future cash flows, the difference is charged to the profit and loss account as an impairment. Deferred tax assets Deferred tax assets, including carry-forward losses, are recognised in financial fixed assets insofar as they are considered realisable. Stocks Raw materials and consumables are stated at the lower of cost on a first-in, first-out basis (FIFO) and market value. Finished goods are stated at cost of manufacture including the cost of raw materials and consumables used and other direct manufacturing costs. Part of the indirect manufacturing cost is recognised in cost of manufacture. Trading stocks are stated at historical cost. Historical cost includes purchase price and related costs. Debtors Debtors are stated at face value net of a provision for doubtful debts where necessary. Provisions are formed on the basis of an individual assessment of the debt s collectability. 30 Minority interests Minority interests are stated at the third party s share in net asset value. Provision for deferred taxation Insofar as there are differences between fiscal valuations and valuations based on these accounting policies, a provision is formed for the resultant deferred tax liabilities, calculated using the tax rate applicable at the date of expected realisation. Pensions and other deferred employee benefits Defined contribution plans Obligations for contributions to defined contribution pension plans are recognised as an expense in the profit and loss account as incurred. Also obligations for defined benefit plans administrated within industry pension funds are accounted for as defined contribution plans on account of their compliance with the provisions of RJ 271. Defined benefit plans Cosun s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. This benefit is discounted to determine its present value, and the fair value of the plan assets is deducted. The discount rate is the yield at the balance sheet on AA credit rated bonds that have maturity dates approximating to the terms of Cosun s obligations. The calculation is performed by a qualified actuary using the projected unit credit method. When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognised as an expense in the profit and loss account on a straight-line basis over the average period until the benefits become unconditional. To the extent that the benefits become unconditional immediately, the expense is recognised immediately in the profit and loss account. All actuarial gains and losses as at 1 January 2005, the date of transition to the new Guidelines regarding employee benefits, were recognised. In respect of actuarial gains and losses that arise subsequent to 1 January 2005 in calculating Cosun s obligation in respect of a plan, to the extent that any cumulative unrecognised actuarial gain or loss exceeds 10% of the greater of the present value of the defined benefit obligation and the fair value of plan assets, that portion is recognised in the profit and loss account over the expected average remaining working lives of the employees participating in the plan. Otherwise, the actuarial gain or loss is not recognised. Where the calculation results in a benefit to Cosun, the recognised asset is limited to the net total of any unrecognised actuarial losses and past service costs and the present value of any future refunds from the plan or reductions in future contributions to the plan.

32 Other deferred employee benefits The obligations in respect of other deferred employee benefits are treated in the same manner as the defined benefit pension plans with the exception of actuarial gains and losses, which are taken directly to the profit and loss account. Profit recognition Cosun recognises sales proceeds in net turnover when delivery has taken place. Net turnover represents the amount receivable from the sale and delivery of goods and services net of discounts, bonuses and taxes on turnover. The share in the results of participating interests represents Cosun s share in the results of those participating interests. Tax on the result for the year comprise both taxes payable in the near future and deferred taxes, with due account being taken of tax facilities and non-deductible costs. Profits are not taxed if and insofar as they can be set off against losses incurred in previous years. Losses are taxed if they cannot be set off against profits earned in previous years. Losses are also taxed if it can reasonably be assumed that they cannot be set off against future profits. Cash flow statement The consolidated cash flow statement is prepared in accordance with the indirect method. The amounts in the cash flow statement comprise cash and cash equivalents. Cash flows denominated in foreign currencies are translated into euros at estimated average rates. The consideration received or paid for group companies acquired or sold is recognised in cash flow from investing activities. Cash balances present in group companies acquired or sold are deducted from the consideration paid or received. Use of estimates In accordance with generally accepted accounting principles, the amounts disclosed in these annual accounts are based in part on estimates and assumptions. Actual results may differ from these estimates. Financial instruments Cosun and its group companies use derivative financial instruments to hedge exchange rate risks and interest rate risks arising from operating, financing and investing activities. The outstanding financing commitments for which the exchange rate risks are valued at the hedge rate. Derivative instruments used to hedge exchange rate risks on permanent group financing and other assets and liabilities denominated in foreign currency at balance sheet date are stated at fair market value and presented as current debtors or liabilities. The fair market value of derivative instruments used to hedge the exchange rate risks on expected future cash flows and interest rate derivative instruments are not valued. 31

33 (1) INTANGIBLE FIXED ASSETS Movements in intangible fixed assets were as follows: Goodwill Other intangible fixed assets Total Book value at 1 January ) 8.4) 84.2) Movements: - Investments - Amortisation - Impairments in value - Other movements 0.7) (3.8) (15.4) 1.9) (2.3) (0.1) 2.6) (6.1) (0.1) (15.4) BOOK VALUE AT 31 DECEMBER ) 7.9) 65.2) Accumulated amortisation and impairments in value at 31 December ) 7.3) 66.3) 32 Goodwill About 72% of the goodwill relates to the purchase of potato activities and is being amortised over 20 years on account of its strategic nature. Goodwill relating to the 39% interest acquired in Koninklijke Nedalco B.V. at the end of December 2004 is amortised over five years at most. Other movements relate among others to a transfer of the tax asset capitalised in goodwill to the provision for deferred taxation. Other intangible fixed assets Other intangible fixed assets, including software and licence expenditure, are amortised over a period of 3 to 5 years. Cosun received CO 2 emission rights free of charge. The net surplus balance at year-end is not valued.

34 (2) TANGIBLE FIXED ASSETS Movements in tangible fixed assets were as follows: Land and buildings Machinery and equipment Other tangible fixed assets Prepayments and in production Not used in production process Total Book value at 1 January ) 186.7) 13.4) 26.9) 19.1) 354.0) Movements: - Investments - Disposals - New in consolidation - Depreciation - Impairments in value - Reversal of impairment in value - Reclassification - Exchange differences 12.3) (0.4) 9.8) (8.2) 0.6) (2.0) 0.8) 46.3) (1.7) 9.4) (34.4) (1.2) 0.2) 2.0) 0.9) 7.3) (0.4) 0.2) (5.6) 0.3) 24.0) (0.1) (0.6) (0.3) 0.1) 0.5) (0.5) (2.5) (2.1) 90.4) (3.1) 19.4) (51.3) (3.3) 0.8) 1.8) BOOK VALUE AT 31 DECEMBER ) 208.2) 15.2) 50.0) 14.5) 408.7) Accumulated depreciation and impairments in value at 31 December ) 386.4) The expected economic lives and the depreciation terms based thereon are 10 to 40 years for buildings, 10 to 20 years for machinery and equipment and an average of 4 years for other tangible fixed assets. The insured value of buildings, machinery, equipment fixtures and fittings is approximately EUR 2 billion (2004: EUR 2 billion). 45.1) 12.3) 553.1) 33

35 (3) FINANCIAL FIXED ASSETS Movements in financial fixed assets were as follows: Participating interests Receivables from participating interests Deferred tax assets Other receivables Total At 31 December ) 0.1) 21.0) 21.1) 57.4) - Change in accounting for sugar stock 9.9) 9.9) At 31 December 2004 after change in accounting principles 15.2) 0.1) 30.9) 21.1) 67.3) - Change in accounting for pensions and other deferred employee benefits 9.7) 9.7) At 1 January ) 0.1) 40.6) 21.1) 77.0) 34 Movements: - Investments and issuances - Repayments - New in consolidation - Share in results of participating interests - Capitalised carry-over losses - Exchange differences - Dividend received and other movements (7.5) 0.4) 6.9) 1.3) 1.6) 3.4) 0.2) 0.1) (0.9) 1.4) (0.9) 1.6) (7.5) 3.4) 0.4) 7.1) AT 31 DECEMBER ) 1.4) 45.8) 20.3) 82.5) Participating interests The participating interests relate in part to unconsolidated indirect interests in Central European Potato Ventures B.V., Oudenhoorn, the Netherlands, (50%) and in Eemshaven Sugar Terminal C.V., Eemshaven, the Netherlands, (41.7%). Deferred tax assets The deferred tax assets relate to the valuation of available carry-forward losses and timing differences between fiscal and commercial valuations (in particular as a result of the change in the accounting principles for pensions and other deferred employee benefits). Of these assets, EUR 4.7 million (2004: EUR 2.4 million) will probably be realised within one year. Other receivables Cosun and the co-seller, joint venture partner AstraZeneca Holdings B.V., have accepted joint and several liability for possible claims following the sale of Advanta B.V. in Other receivables accordingly include an interest bearing escrow of EUR 20.0 million that is not available on demand.

36 (4) STOCKS Finished goods and trading stocks Raw materials and consumables The comparative figure for finished goods and trading stocks in 2004 has been restated by EUR 80.4 million as a result of the change in the accounting principles for the sugar stock. Of the stocks, EUR 1.8 million (2004: EUR 2.3 million) is stated at lower market value. The provision for obsolete stocks amounts to EUR 6.5 million. (5) DEBTORS, PREPAYMENTS AND ACCRUED INCOME Trade debtors Receivables from participating interests and joint ventures Taxes Other debtors, prepayments and accrued income Other debtors, prepayments and accrued income include an interest-bearing receivable from Stichting pensioenfonds Koninklijke Cosun of EUR 7.6 million (2004: nil). (6) CASH Cash includes deposits of EUR 5.0 million (2004: EUR million) that mature in Of the cash, EUR 4.2 million (2004: EUR 6.0 million) is not available on demand. (7) CAPITAL AND RESERVES For a breakdown of capital and reserves, reference is made to the notes to the cooperative accounts.

37 (8) MINORITY INTERESTS At 1 January 15.5) 21.1) Movements: - Share in results - Changes in consolidation - Dividend - Exchange differences and other movements AT 31 DECEMBER (0.2) (0.2) 0.2) 15.3) (2.6) (1.3) (1.7) 15.5) Minority interests consist chiefly of the third-party interests in the Slovenian sugar factory Tovarna Sladkorja Ormoz dd and in the trading house, Limako B.V. (9) PROVISIONS Deferred taxation Restructuring and reorganisation Other Pensions and other deferred employee benefits 21.7) 20.3) 30.8) 72.8) 54.1) 126.9) 16.3) 24.6) 28.2) 69.1) 22.9) 92.0) Approximately EUR million (2004: EUR 74.5 million) of the provisions is long-term in nature.

38 Movements in provisions other than the provision for pensions and other deferred employee benefits were as follows: Deferred taxation Restructuring and reorganisation Other Total At 31 December ) 24.6) 28.2) 77.1) - Change in accounting for sugar stock (8.0) (8.0) At 1 January 2005 after change in accounting principles 16.3) 24.6) 28.2) 69.1) Movements: - Additions charged to the profit and loss account - New in consolidation - Withdrawals - Release to profit and loss account - Reclassification - Other movements ) ) ) ) ) 5.4) 2.9) (5.5) (3.0) (0.8) 2.1) 7.9) 2.0) (8.0) (7.1) 0.8) 7.0) 10.8) 2.0) (13.5) (10.1) 14.5) AT 31 DECEMBER ) 20.3) 30.8) 72.8) 37 Provision for deferred taxation The provision for deferred taxation relates to the timing difference between fiscal and commercial valuations. Other movements include a reclassification of a tax asset capitalised in goodwill. Provision for restructuring and reorganisation The provision for restructuring and reorganisation relates to payments and other expenses in respect of reorganisations announced and commenced at balance sheet date. Other provisions Other provisions have been formed in respect of contract risks, claims and fines to an amount of EUR 16.0 million (2004: EUR 19.1 million). Other provisions have also been formed for environmental risks, asset demolition risks and other risks to an amount of EUR 14.8 million (2004: EUR 9.1 million). Pensions and other deferred employee benefits Several employee benefits and pension plans apply within Cosun. The life-long pension plans for employees of the business groups Suiker Unie, Nedalco, Aviko and Unifine Sauces & Spices are administered separately by the business groups own company pension funds. Several other pension plans, including the transitional early retirement plan at Suiker Unie and the life-long pension plan at SVZ, are administered by insurance companies. A number of plans are administered by an industry pension fund or are self-administered (medical costs, jubilee and payments by death). Administration of the plans takes account of local statutory frameworks and terms of employment.

39 31 December January 2005 Present value of funded obligations Present value of unfunded obligations Present value of other deferred employee benefits Fair value of plan assets 623.1) 3.8) 5.1) (556.7) 547.0) 12.0) 4.6) (509.4) Present value of net obligations 75.3) 54.2) Unrecognised actuarial gains and losses Unrecognised past service costs for conditional pension benefits TOTAL (10.5) (10.7) 54.1) 54.2) Movements in the net obligation disclosed in the balance sheet for pensions and other deferred employee benefits granted can be broken down as follows: At 31 December Change in accounting for pensions and other deferred employee benefits 22.9) 31.3) At 1 January 2005 Movements: - New in consolidation - Contributions paid - Charged to profit and loss account (see below) 54.2) 5.3) (19.0) 13.6) AT 31 DECEMBER ) The expense recognised in the profit and loss account in respect of defined benefit pension plans can be broken down as follows: 2005 Current service cost Employee contributions Interest on obligations Expected return on plan assets Curtailment or settlement result Actuarial results Past service costs TOTAL 18.9) (1.3) 25.5) (26.5) (10.3) 0.4) 6.9) 13.6) The actual return on plan assets amounts to EUR 44.4 million.

40 The expense is included under staff costs in the profit and loss account. The expense for the 2005 financial year was impacted by the recognition of changes in the pension plans of Suiker Unie, Nedalco, Aviko and Unifine Sauces & Spices. These changes related chiefly to changes in tax legislation on early retirement plans. The effect of limiting or curtailing medical cost plans at Suiker Unie and Nedalco respectively was also recognised in The main actuarial assumptions are: 31 December January 2005 Discount rate Expected return on shares Expected return on bonds General salary increases Inflation rate medical costs Future pension increases 4.00 % 7.00 % 4.00 % 2.00 % 4.00 % 2.00 % 4.50 % 7.00 % 4.00 % 2.00 % 4.00 % 2.00 % The mortality table used was the GBM/V , with an adjustment of two years for men and one year for women. In a limited number of specific cases, exceptions are made from the assumptions above only insofar as the conditions of the insurance contract or the financial policy of the company pension fund gave cause to do so. (10) LONG-TERM LIABILITIES Payable to credit institutions Payable to institutional investors Effective interest rate % Effective interest rate % Payable to credit institutions Of the long-term liabilities payable to credit institutions, EUR 4.5 million has a remaining term of between 1 and 5 years. The remaining EUR 10.8 million has a remaining term of more than 5 years. EUR 1.1 million carries variable interest based on Euribor. Payable to institutional investors Amounts payable to institutional investors relate entirely to loans issued by British and American institutional investors repayable in full on maturity after 5, 8, 10 and 13 years. The loans are denominated in euros (EUR 55.0 million) and in US dollars (USD million). The entire currency risk on the principal and interest payments of the non-euro loans has been hedged by means of financial instruments for the term of the loans. The funds have been granted to the group on condition that it satisfies certain financial ratios. All these conditions were satisfied during the year.

41 (11) CURRENT LIABILITIES Payable to credit institutions Liabilities with a financing character Total credit institutions and liabilities with a financing character Payable to members Payable to participating interests Payable to suppliers and trade creditors Corporation tax payable Other taxes and social security contributions payable Pension liabilities Other current liabilities, accruals and deferred income Total current liabilities, accruals and deferred liabilities With effect from 2005, amounts payable to credit institutions are no longer netted against positive cash balances in the notional pooling arrangements. No amounts were drawn in 2005 (and 2004) under an agreement for the sale and repurchase of sugar. This agreement will expire on 30 June Other liabilities, accruals and deferred income relate to production levies, interest, holiday allowance and holidays and other expenses payable. The comparative 2004 figure for other liabilities, accruals and deferred income has been adjusted by EUR 23.6 million in connection with the change in the accounting principles for the sugar stock and the related accrual. (12) FINANCIAL INSTRUMENTS In accordance with the treasury policy, the business does not hold derivative instruments for trading purposes, nor does it issue such instruments. Exchange rate risk There is a limited exposure in the operating profit to fluctuations in foreign exchange rates. Treasury policy is to hedge such risks as fully as possible. The exchange rate risk on expected future cash flows is hedged by means of forward exchange contracts and derivative instruments. The exchange rate risk on the translation of net investments in and financing contracts for group companies denominated in foreign currency are hedged by means of exchange rate swaps.

42 The following table shows the contract volumes and fair market value of the contracts outstanding at 31 December (excluding the contracts for amounts payable to institutional investors), all of which have been concluded with respected financial institutions: Contract volume 2005 Fair market value 2005 Contract volume 2004 Fair market value 2004 Forward exchange contracts and exchange rate swaps: US dollar Pound sterling Hungarian forint 61.8) 41.7) 0.2) (0.1) 0.1) 30.3) 24.1) 1.5) 0.6) 103.7) 54.4) 2.1) Of the forward exchange contracts and exchange rate swaps, EUR 5.8 million (2004: nil) has a term of less than one year. Credit risk Credit risks differ by country and individual counterparty. They are managed by means of credit limits per country and per counterparty. The credit risk relating to derivatives and other financial instruments is managed by concluding contracts with respected financial institutions and counterparties only. Interest rate risk To manage interest rate risks, between 50% and 100% of the interest payable on the long-term financing requirement is hedged by means of financial instruments. Fair market value The estimated fair market value of the individual financial assets and liabilities, given their nature and term, does not differ materially from their book value at balance sheet date. 41 (13) OFF-BALANCE SHEET ASSETS AND COMMITMENTS Securities Financing agreements include negative pledges with pari passu clauses. A number of group companies have given security to credit institutions and tax authorities in the form of non-possessory pledges on stock, machinery and business equipment, silent pledges on debtors and mortgages on a number of properties. Claims Cosun and/or its group companies are involved in a number of legal cases in connection with the group s ordinary activities. Although the outcome of these claims cannot be predicted with certainty, Cosun does not expect the total obligations arising from them to be of material importance to the consolidated financial position. Provisions have been formed for all third-party claims that might be upheld and that can be reasonably estimated. Guarantees Cosun has given guarantees to third parties to an amount of approximately EUR 34.0 million (2004: EUR 42.7 million). Long-term financial commitments Long-term unconditional commitments have been assumed in respect of rentals and operating leases. The related instalments for 2005 amount to EUR 10.6 million (2004: EUR 16.6 million). The rental and lease instalments payable within one year amount to approximately EUR 3.7 million (2004: EUR 5.0 million). Instalments payable after five years amount to approximately EUR 0.6 million (2004: EUR 3.1 million). Contingent investment liabilities amount to EUR 27.1 million (2004: EUR 28.7 million).

43 (14) NET TURNOVER Net turnover can be broken down by business group as follows: Basic ingredients Potato products Compound ingredients 699.7) 371.0) 357.7) 663.6) 375.2) 352.0) Total Intercompany transactions 1,428.4) (89.9) 1,390.8) (73.5) 1,338.5) 1,317.3) Net turnover by geographical region can be broken down as follows: The Netherlands Rest of the EU Rest of Europe North and South America Rest of the world 515.2) 656.0) 31.4) 73.5) 62.4) 1,338.5) 526.8) 628.0) 52.0) 63.2) 47.3) 1,317.3) (15) OTHER OPERATING INCOME Other operating income includes profit on assets and CO 2 rights, insurance benefits received, subsidies, income received in respect of services rendered to third parties, rental income and a reversal of an impairment in value from 2004 (EUR 0.8 million). The decline in other operating income in comparison with the previous year is attributable chiefly to the proceeds from the sale of Unifine Richardson in (16) EU LEVIES This item relates to levies on A and B sugar and A fructose. An additional B levy was imposed in (17) COST OF RAW MATERIALS AND CONSUMABLES This item includes the cost of raw materials and consumables, purchased finished goods and production-related energy costs. Purchases from members amounted to approximately EUR 177 million (2004: EUR 202 million). (18) COST OF WORK SUBCONTRACTED AND OTHER EXTERNAL CHARGES This item includes rental costs, research costs, repair and maintenance costs, indirect energy costs, transport costs, office expenses, selling expenses, insurance costs and IT costs. Total research & development costs, including staff costs, amounted to EUR 11.1 million (2004: EUR 11.6 million).

44 (19) STAFF COSTS Wages and salaries Social security contributions Pension costs An incidental expense of EUR 29.7 million was recognised under staff costs in 2004 on account of the termination of sugar production in Puttershoek and the closure of SVZ s concentrate factory in Hien-Dodewaard. (20) NUMBER OF EMPLOYEES Expressed in full-time equivalents, the average number of employees at Cosun during the 2005 financial year was 4,194 (2004: 3,993). The employees were engaged in the following activities (average number of employees): Basic ingredients Potato products Compound ingredients Other 1,120 1,280 1, ,173 1,032 1, Of whom, employed outside the Netherlands 4,194 1,522 3,993 1,510 (21) IMPAIRMENTS IN VALUE OF INTANGIBLE AND TANGIBLE FIXED ASSETS Impairments in value totalled EUR 3.4 million. They related chiefly to the downward revaluation of buildings and machinery not used in the production process. The comparative figure includes impairments of: tangible fixed assets following the termination of sugar production in Puttershoek; the tangible fixed assets of the Slovenian sugar factory in which Cosun has a 59.77% interest owing to a change in projected results following Slovenia s accession to the EU; the goodwill purchased on the acquisition of Aviko owing to the changing market conditions. (22) FINANCIAL INCOME AND EXPENSE Financial income and expense includes interest payable on loans, interest-bearing amounts receivable and other debts. (23) TAXATION The corporation tax disclosed in the profit and loss account comprises a charge of EUR 12.1 million on a profit of EUR 43.4 million. The effective tax rate was 28% (2004: 52%). The difference from the nominal tax rate (31.5% in the Netherlands) was due to non-deductible costs (including goodwill), the higher valuation of carry-over losses insofar as they are considered realisable, the movement in the accrual for tax risks and the recalculation of deferred tax liabilities owing to the future reduction in the tax rate. The tax burden in 2004 was higher than the standard tax rate owing to the non-valuation of carry-forward losses and the write-down of non-deductible goodwill. Tax losses that can be carried forward indefinitely, insofar as they are not included in the balance sheet under deferred tax assets, amounted to EUR 20.8 million (2004: EUR 28.5 million).

45 (24) CASH FLOW STATEMENT Movements in the cash flow statement can be derived largely from the movements in the relevant balance sheet items. For those balance sheet items for which movements are not disclosed, the balance sheet movement and the cash flow statement movement are reconciled below: Working capital Provisions At year-end ) (100.0) - Change in accounting for sugar stock (56.8) 8.0) At year-end 2004 after change in accounting principles At year-end ) 369.2) (92.0) (126.9) Balance sheet movement (84.4) 34.9) Adjusted for: - Change in accounting for pensions and other deferred employee benefits - Changes in the consolidation and sale of participating interests - Transfers 1.8) 2.6) 4.0) (33.6) (7.3) 11.5) 44 CASH FLOW MOVEMENT (76.0) 5.5)

46 Cooperative balance sheet (before profit appropriation; in EUR millions) At year-end Note ASSETS FIXED ASSETS Intangible fixed assets (25) Tangible fixed assets (26) Financial fixed assets (27) * CURRENT ASSETS Stocks (28) Debtors, prepayments and accrued income (29) Cash * , ,213.1 EQUITY AND LIABILITIES CAPITAL AND RESERVES (30) PROVISIONS (31) LONG-TERM LIABILITIES (32) * 63.5* CURRENT LIABILITIES (33) Credit institutions and liabilities with a financing character Current liabilities, accruals and deferred income * , ,213.1 *) Figures for 2004 have been restated for comparative purposes, see note on page 28.

47 Cooperative profit and loss account (in EUR millions) For the financial year Cooperative result after taxation Result of participating interests after taxation RESULT FOR THE YEAR 25.2) (1.2) 24.0) (52.5)* 144.8) 92.3) RESULT ALLOCATION IN ACCORDANCE WITH ARTICLE 1 OF THE SUGAR BEET DELIVERY PAYMENT REGULATIONS Result of participating interests less dividends paid Cooperative result including dividends received from participating interests (4.3) 28.3) 143.8) (51.5)* *) Figures for 2004 have been restated for comparative purposes, see note on page 28. Notes to the cooperative accounts (in EUR millions) 46 General Insofar as notes on items in the cooperative balance sheet and profit and loss account are not provided below, reference is made to the notes to the consolidated annual accounts. As a result of the change in the accounting principles for the sugar stock, the figures for 2004 have been restated for comparative purposes. Accounting principles The cooperative balance sheet and profit and loss account are prepared using the same accounting principles as applied for the consolidated balance sheet and profit and loss account. (25) INTANGIBLE FIXED ASSETS Movements in intangible fixed assets were as follows: Goodwill Other intangible fixed assets Total Book value at 1 January ) 0.5) 64.4) Movements: - Amortisation - Other movements (4.2) (11.5) (0.3) (4.5) (11.5) BOOK VALUE AT 31 DECEMBER ) 0.2) 48.4) Accumulated amortisation and impairments in value at 31 December ) 1.2) 34.6)

48 (26) TANGIBLE FIXED ASSETS Movements in tangible fixed assets were as follows: Land and buildings Machinery and equipment Other tangible fixed assets Prepayments and in production Not used in production process Total Book value at 1 January ) 59.4) 2.6) 1.9) 10.8) 95.7) Movements: - Investments - Disposals - Depreciation - Other movements 2.4) (0.1) (2.2) 0.6) 11.4) (13.2) 0.2) 1.8) (1.4) (1.5) 14.1) (0.1) (16.8) 0.8) BOOK VALUE AT 31 DECEMBER ) 57.8) 3.0) 0.4) 10.8) 93.7) Accumulated depreciation and impairments in value at 31 December ) 120.6) 16.0) 0.1) 180.6) (27) FINANCIAL FIXED ASSETS Participating interests in group companies Receivables from group companies Deferred tax assets Other participating interests ) 9.4) 11.4) 437.7) 14.0) 9.9) 0.1) ) 461.7)

49 Movements in financial fixed assets were as follows: Participating interests in group companies Receivables from group companies Deferred tax assets Other participating interests Total At 31 December ) 14.0) 0.1) 451.8) - Change in accounting for sugar stock 9.9) 9.9) At 31 December 2004 after change in accounting principles 437.7) 14.0) 9.9) 0.1) 461.7) - Change in accounting for pensions and other deferred employee benefits (20.5) 1.1) (19.4) At 1 January ) 14.0) 11.0) 0.1) 442.3) 48 Movements: - Share in result of participating interests - Capital contribution - Repayments - Divestment of interests - Exchange differences - Dividend - Other movements (1.2) 8.0) (26.8) 2.9) (3.1) 3.7) (4.6) 0.4) (0.1) (1.2) 8.0) (4.6) (26.9) 2.9) (3.1) 4.1) AT 31 DECEMBER ) 9.4) 11.4) 421.5) Participating interests in group companies The interests in Aviko C.V., Rixona C.V. and De Fritesspecialist C.V. were sold to group companies at net asset value in Receivables from group companies Receivables from group companies include a subordinated EUR 5.0 million loan granted to Koninklijke Nedalco B.V. This loan is subordinate to amounts payable by this group company to credit institutions.

50 (28) STOCKS Raw materials and consumables Finished goods and trading stocks 5.3) 248.8) 5.8) 257.5) 254.1) 263.3) The 2004 comparative figure for finished goods and trading stocks has been adjusted by EUR 80.4 million to allow for the change in the accounting principles for the sugar stock. The provision for obsolete stock amounts to EUR 4.3 million. (29) DEBTORS, PREPAYMENTS AND ACCRUED INCOME Trade debtors Receivables from group companies Taxes Other debtors, prepayments and accrued income 29.7) 311.6) 15.2) 16.8) 28.1) 171.4) 12.2) 10.4) 373.3) 222.1) 49 (30) CAPITAL AND RESERVES Paid-up share capital and premium 15.5) 15.5) Exchange differences reserve Revaluation reserve (11.2) 3.7) (14.4) Total statutory reserves (7.5) (14.4) Other reserves Undistributed result 513.6) 24.0) 445.8) 92.3) Other reserves and undistributed result 537.6) 538.1) 545.6) 539.2)

51 Paid-up share capital and premium Share capital Share premium reserve Non-paid capital and premium Total 2005 Total 2004 At 1 January 5.4) 16.3) (6.2) 15.5) 15.4) Movements: - Shares issued - Shares repurchased - Payable on shares 0.2) (0.3) 0.7) (0.9) (1.0) 0.2) 1.1) (0.1) (1.0) 1.1) (1.0) 1.1) AT 31 DECEMBER 5.3) 16.1) (5.9) 15.5) 15.5) The total number of shares issued was 118,247 (2004: 119,705). Statutory reserves, other reserves and undistributed result 50 At 31 December Revaluation reserve Exchange differences reserve (14.4) Other reserves 462.8) Undistributed result 114.2) Total ) Total ) - Change in accounting for sugar stock (17.0) (21.9) (38.9) (17.0) At 31 December after change in accounting principles (14.4) 445.8) 92.3) 523.7) 432.4) - Change in accounting for pensions and other deferred employee benefits (22.0) (22.0) At 1 January (14.4) 423.8) 92.3) 501.7) 432.4) Movements: - Profit appropriation - Result for the year - Distribution to members - Exchange differences - Negative goodwill - Release to profit and loss account 5.4) (1.7) 3.2) 92.3) (2.5) (92.3) 24.0) 24.0) (2.5) 3.2) 5.4) (1.7) 92.3) (3.9) 2.9) AT 31 DECEMBER 3.7) (11.2) 513.6) 24.0) 530.1) 523.7)

52 Under Article 46 of the Articles of Association, payments are made to members and contracting parties. With effect from January 2000, these payments are made in accordance with the Sugar Beet Delivery Payment Regulations; previously the Cessation of Business Regulations had been applicable. The amount of the payment is determined by the average number of tonnes of sugar beet delivered, the cooperative s average net result, including dividends received from participating interests, per tonne of sugar beet delivered in the three previous financial years and a factor per campaign. During a transitional period, payments will also be made in accordance with the Cessation of Business Regulations and will be determined by the number of shares held, the number of years that the member has held the shares and the cooperative s average net result, including dividends received from participating interests, per share in the three previous financial years. Payment may be claimed as from the moment that business activities cease or after a delivery period of at least 15 consecutive campaigns. If all members had been entitled to a payment at 31 December 2005, the aggregate net payment would have amounted to EUR 28.7 million (2004: EUR 51.9 million). Distributions are made from other reserves. Revaluation reserve The revaluation reserve has been formed for negative goodwill, which is taken to the profit and loss account in proportion to the weighted average remaining life of the depreciable assets acquired. Undistributed result In accordance with the Board s resolution of 15 March 2005, the result after taxation for 2004 has been added to other reserves. (31) PROVISIONS Deferred taxation Restructuring and reorganisation Other Pensions and other deferred employee benefits Approximately EUR 52.2 million (2004: EUR 51.5 million) of the provisions are long-term in nature.

53 Movements in provisions other than the provision for pensions and other deferred employee benefits were as follows: Deferred taxation Restructuring and reorganisation Other Total At 31 December ) 18.5) 14.8) 51.1) - Change in accounting for sugar stock (8.0) (8.0) At 1 January 2005 after change in accounting principles 9.8) 18.5) 14.8) 43.1) Movements: - Additions charged to the profit and loss account - Withdrawals - Release to the profit and loss account - Other movements 6.1) 1.2) (2.9) (2.9) 2.1) 6.6) (1.0) (7.0) 7.8) (3.9) (9.9) 8.2) AT 31 DECEMBER ) 16.0) 13.4) 45.3) 52 Pensions and other deferred employee benefits 31 December January 2005 Present value of funded obligations Present value of unfunded obligations Present value of other deferred employee benefits Fair value of plan assets 371.7) 2.0) 2.2) (360.3) 347.7) 7.6) 2.2) (336.0) Present value of net obligations 15.6) 21.5) Unrecognised actuarial gains and losses Unrecognised past service costs for conditional pension benefits 0.9) (4.6) TOTAL 11.9) 21.5)

54 Movements in the net commitments in respect of pension rights granted and other deferred employee benefits disclosed in the balance sheet were as follows: 2005 At 31 December Change in accounting for pensions and other deferred employee benefits At 1 January 2005 Movements: - Contributions paid - Charged to profit and loss account (see below) AT 31 DECEMBER ) 1.1) 21.5) (9.3) (0.3) 11.9) The expense recognised in the profit and loss account in respect of defined benefit plans can be broken down as follows: 2005 Current service cost Employee contributions Interest on the obligations Expected return on plan assets Curtailment or settlement result Actuarial results Past service costs TOTAL 7.4) (0.1) 15.7) (17.6) (7.7) 0.3) 1.7) (0.3) 53 The actual return on plan assets was EUR 29.6 million. The actuarial assumptions are provided in the notes to the consolidated annual accounts. (32) LONG-TERM LIABILITIES 2005 Effective interest rate % 2004 Effective interest rate % Payable to institutional investors 239.6) 4.9) 239.6) 4.9)

55 (33) CURRENT LIABILITIES Payable to credit institutions Liabilities with a financing character Total credit institutions and liabilities with a financing character Payable to group companies Payable to members Payable to suppliers and trade creditors Corporation tax payable Other taxes and social security contributions payable Other current liabilities, accruals and deferred income Total current liabilities, accruals and deferred income (34) OFF-BALANCE SHEET COMMITMENTS Joint and several liability and guarantees The cooperative has given guarantees to third parties to an amount of approximately EUR 12.3 million (2004: EUR 34.8 million). 54 (35) OTHER INFORMATION The remuneration, including pension costs as referred to in article 383 (1), Book 2, of the Dutch Civil Code, of current and former members of the Board amounted to EUR 0.6 million (2004: EUR 0.7 million) and that of current and former members of the Supervisory Board to EUR 0.1 million (2004: EUR 0.1 million). The remuneration was charged to the profit and loss account. Board Supervisory Board J.E.M. van Campen B.G.W. Vervoort G.M. van Tilburg C.E.M. de Waal I.L.G. van Melle N.H. van Halder J.M. Klompe C. van Hilten D. H. de Lugt F. Wiersema J.M.M. Megens W. van der Zee Ms G. Prins J.A. Smid T. van der Torren Breda, 15 March 2006

56 Other information AUDITORS REPORT Introduction We have audited the financial statements of Koninklijke Coöperatie Cosun U.A. (Breda, the Netherlands) for the year 2005 on pages 23 to 55 of this annual report. These financial statements are the responsibility of the company s management. Our responsibility is to express an opinion on these financial statements based on our audit. Scope We conducted our audit in accordance with auditing standards generally accepted in the Netherlands. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. Opinion In our opinion, the financial statements give a true and fair view of the financial position of the company at 31 December 2005 and of the result for the year then ended in accordance with accounting principles generally accepted in the Netherlands and comply with the financial reporting requirements included in Part 9, Book 2 of the Dutch Civil Code. Furthermore we have established to the extent of our competence that the annual report is consistent with the company financial statements. Eindhoven, 15 March KPMG ACCOUNTANTS N.V. E.H.W. Weusten RA PROVISIONS OF THE ARTICLES OF ASSOCIATION ON PROFIT APPROPRIATION The appropriation of the profit for the year is laid down in the Articles of Association (Article 42, paragraphs 1 and 2) as follows: the Board shall determine what proportion of the cooperative s profit for the year shall be added to reserves. Unless the Members Council resolves otherwise on the Boards recommendation, the amount remaining after the above addition shall be distributed among those members who were A members or B members at the end of the financial year in question, or who had ceased to be A members or B members during or at the end of that financial year; with regard to B members, the distribution shall be made with due regard for the Membership Agreement and at the direction of the relevant C members in accordance with the quantity of produce supplied to the cooperative in that financial year and in accordance with the method of payment stipulated in the Sugar Beet Regulations. PROPOSED PROFIT APPROPRIATION The result after taxation for 2004 was added to other reserves in accordance with the Board s resolution of 15 March The result after taxation for the 2005 financial year is included in capital and reserves under undistributed results. The Board resolved in 2006 to add the result after taxation for the 2005 financial year to other reserves. POST-BALANCE SHEET EVENTS On 3 March 2006, Cosun divested the American and Canadian activities of Custom Industries (a member of Unifine Food & Bake Ingredients). These activities had been included in the consolidation. The proceeds of the divestment will be recognised in This annual report is also available in Dutch. In the event of textual inconsistencies between the English and the Dutch versions the latter shall prevail.

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58 Addresses Royal Cosun Cosunpark 1 P.O. Box MG Breda The Netherlands Telephone Fax Internet [email protected] Suiker Unie Sensus P.O. Box 100 P.O. Box AC Oud-Gastel 4700 BH Roosendaal The Netherlands The Netherlands Telephone Telephone Fax Fax Internet Internet [email protected] [email protected] Cosun Food Technology Centre Royal Nedalco P.O. Box 1308 P.O. Box BH Roosendaal 4600 AA Bergen op Zoom The Netherlands The Netherlands Telephone Telephone Fax Fax Internet Internet [email protected] SVZ Aviko P.O. Box 27 P.O. Box AA Etten-Leur 7220 AA Steenderen The Netherlands The Netherlands Telephone Telephone Fax Fax Internet Internet [email protected] [email protected] Unifine Sauces & Spices Unifine Food & Bake Ingredients P.O. Box 5652 P.O. Box ZG Puttershoek 4801 LJ Breda The Netherlands The Netherlands Telephone Telephone Fax Fax Internet Internet [email protected] [email protected] Colofon Advice, text & coordination Graphic design Printing Jonkergouw & van den Akker B.V., Amsterdam Louise Stavast, Hilversum Roto Smeets GrafiServices Utrecht