Growth in Cooperation. 2007/2008 Annual Report

Transcription

1 Growth in Cooperation 2007/2008 Annual Report

2 Nordzucker at a glance Consolidated net income in EUR m Revenues in EUR m HGB IFRS HGB IFRS ,023 1,007 1,073 1,184 1,146 1,254 1,234 1,296 1,234 1,300 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 Return on revenues in per cent Return on equity in per cent HGB IFRS HGB IFRS Target 5 % Target 10 % /99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 98/99 99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08

3 Growth in cooperation Our core competence is producing sugar from beet. Sustainable improvements in efficiency and technological expertise in cultivation, logistics and production form the basis for Nordzucker s leading position in Europe. We intend to use the agricultural commodity sugar both as a foodstuff and as a source of energy. This will secure a key role for Nordzucker as a producer in these markets well into the future. Eurosugar is the strategic partner for European customers and secures sales markets and development potential.

4 Group figures and ratios HGB IFRS Structure figures 2003/ / / / /08 Number of plants (total) Number of plants abroad Number of employees average for the year 3,758 3,458 2,820 3,616 2,861 Number of employees average for the year (abroad) 1,864 1,540 1,023 1,959 1,349 HGB IFRS Operating business 2003/ / / / /08 Beet farmers 17,028 16,417 15,917 14,239 13,636 Beet cultivation area ha 208, , , , ,893 Beet processing t/day 131, , , , ,954 Sugar production millions of tonnes Sugar revenues millions of tonnes Revenues EUR m 1,254 1,234 1,296 1,234 1,300 of which abroad % Total revenues EUR m 1,211 1,211 1,178 1,271 1,377 Gross income EUR m EBITDA EUR m EBIT EUR m Net income EUR m Cash flow from operating activities EUR m Investments in property, plant and equipment EUR m Investments in financial assets Nordzucker AG EUR m

5 Group figures HGB IFRS Yield ratios 2003/ / / / /08 Gross margin 1 % Total operating profitability 2 % Return on revenues 3 % Return on equity 4 % Interest coverage ratio Redemption period 6 years Cash flow from operating activities per share EUR Earnings (Group) per share 7 EUR Dividend per share 8 EUR Total dividend EUR m HGB IFRS Balance sheet ratios as of 28/2 or 29/ Balance sheet total EUR m 1,125 1,383 1,343 1,651 1,835 Equity EUR m Equity ratio % Debt capital EUR m ,104 Financial liabilities EUR m Cash and cash equivalents EUR m Net debt 9 EUR m Gross income/revenues EBITDA/total revenues Net income/revenues Net income/equity EBITDA/net interest Net debt/ebitda Net income/number of shares Total dividend/number of shares Cash and cash equivalents financial liabilities

6 Nordzucker markets and trends Highlights of the year 2007/2008 Politics Market Company Reformed sugar market regime in its second year The reform of the sugar market regime which came into effect on July 1, 2006 had a considerable impact on the financial year 2007/2008 for the Nordzucker Group. The expectation of rising sugar imports from LDC and ACP countries and the simultaneous limitation of sugar exports from the EU were intended to create incentives for the sugar industry to return sugar quotas of six million tonnes to the European Commission. Quota returns stabilise sugar market The first and second waves of quota returns nearly reached the EU target of a reduction of six million tonnes. Global sugar production Worldwide sugar production for 2007/ 2008 is estimated at a raw value of some 169 million tonnes. Global sugar consumption accounts for a raw value of around 155 million tonnes. The rise in global sugar production is primarily due to production increases in Asia. In 2007/2008 India produced some ten million tonnes more than the previous year, making it responsible for 80 per cent of the extra global production. World market price Having moved sideways at around EUR 255 per tonne during the first quarter of 2007 the world market price for sugar fell steadily to EUR 193 in November The price has since recovered and was at EUR 242 in February EU sugar production In the sugar marketing year 2007/2008 EU sugar production remained at the same level as the previous year at 15.9 million tonnes white sugar value, as did consumption at a white value of 17.2 million tonnes. The Beet Goes On Nordzucker s corporate strategy, organisational structure and international outlook are permanently optimised to keep the company abreast of the changes on the sugar market and to take a leading position. Nordzucker is implementing this process of conscious change and improvement in order to enter a new era of sugar production in Europe with renewed vigour. Sugar and energy Producing sugar from beet is part of Nordzucker s heritage. This and the spirit of partnership which unites us with beet farmers form the basis for Nordzucker s strategy: sugar production from beet and new horizons in the market for renewable energy. Substantial, sustainable growth in both these fields will be decisive for Nordzucker s future success. 2

7 Contents Campaign Longest campaign at 117 days The longest campaign in Nordzucker s history was characterised by unusually high rainfall during the months of beet processing. This posed considerable challenges for all those involved in the harvest, transport and processing of beet, which together were successfully overcome. High beet yields For the Group as a whole the yield of 56.6 tonnes of beet per hectare was nearly nine per cent above the previous year s figure. Sugar content declined by 16.8 per cent compared to the previous year. Factory closure in Güstrow Nordzucker AG shut down its factory in Güstrow following the beet campaign The 99 staff members affected are covered by the redundancy package in place since All will receive job offers in one of the remaining five factories in Germany. All 14 apprentices will be able to finish their training and complete one practical year as arranged. Bioethanol Production start for bioethanol The bioethanol plant run by fuel 21 GmbH & Co. KG, a wholly-owned subsidiary of Nordzucker, came into operation in December It is the first facility in Germany to produce bioethanol solely on the basis of sugar beet. From now on some 130,000 cubic metres of bioethanol will be produced annually in an annexe plant run jointly with the sugar factory in Klein Wanzleben. Pilot project biogas A pilot plant for producing biogas has been operating on the site of the former sugar factory in Groß Munzel since January The aim of the pilot project, which is in a trial phase lasting until the end of the year, is to ascertain whether biogas from beet and chippings can be produced throughout the year for subsequent feeding into the gas network as bio-natural gas. Letter from the Management Board 5 Growth in cooperation 10 The Beet Goes On 10 Diverse opportunities 14 Cost efficiency and innovation 18 European management 22 Group management report 26 Political environment 26 Market 28 Sugar sales 29 Beet cultivation and campaign 32 Environment 35 Employees 35 Financial and earnings situation 37 Risk report 44 Supplementary report 47 Strategic positioning 49 Forecast report 49 Consolidated financial statements 52 Consolidated income statement 52 Consolidated cash flow statement 53 Consolidated balance sheet 54 Consolidated statement of changes in shareholders equity 56 Notes to the consolidated financial statements 58 Auditors report 106 Report of the Supervisory Board 107 Corporate governance report 110 Glossary 112 Financial calendar inside back cover Nordzucker Nordzucker 2007/ /

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9 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Dear Shareholders, We have concluded the financial year 2007/2008 with highly satisfactory results. The dividend remains at the same level as last year. Revenues increased despite the lack of sugar exports and the financial indicators were all above our long-term targets. We can be proud of what was altogether a successful year. At the same time it was a year in which far-reaching decisions were taken concerning Nordzucker s future development. For a long time no one could have imagined the scenarios which became reality in Companies with highly efficient sugar production facilities based in the most fertile beet growing areas in Europe were returning part of their production quota. The European Commission s target of reducing sugar production by a total of six million tonnes was set in stone. Only a few sugar companies returned quotas, both in peripheral and core regions. This led the European Commission to increase the pressure. We are confronting this situation with a double strategy. After carefully weighing all the relevant factors we took the decision to return quota and therefore to close factories in Germany and Hungary. The reference price for sugar, which is to go down in future, and the restructuring levy, which already hits earnings, force us to be totally disciplined on costs and optimise capacity utilisation at the available factories. Absolute cost discipline and an optimal utilisation of factory capacity in combination with continuous reductions in production quotas meant that more factories had to be closed. Whilst the productivity increases are the logical consequence of the alterations to the sugar market regime, the need for more strategic growth has also risen sharply. It is precisely in our market, which is defined by wrenching change, that we have identified new opportunities and potential for growth. We have reviewed our strategic objectives, revised them where necessary and are now systematically pursuing our successful path. Since October 2007 our sugar has been marketed by the European distribution company Eurosugar based in Paris. Eurosugar has regional offices in all the main regions of the EU. This broad market presence and a Nordzucker 2007/2008 5

10 Hans-Gerd Birlenberg (born in 1954) Chairman of the Management Board of Nordzucker AG since 2007 and Management Board member since 2006 Responsible for: Finance & Controlling, IT, Corporate Communications, Corporate Counsel, Human Resources, Risk Management, Sales combined expertise in sugar distribution, quality assurance and logistics are clear competitive advantages for Eurosugar. We manage Eurosugar jointly with our French and English partners Cristal Union and ED&F Man. In future, however, it will no longer be possible to supply the EU sugar market solely with sugar from home-grown beet. The quota returns will lead to shortfalls in Europe, which will need to be made good. Years of experience in sugar refining and sugar logistics will play a vital role. Dr Hendrik Einfeld (born in 1945) Member of the Management Board of Nordzucker AG since 2007 Responsible for: Agriculture, Raw Material Procurement Germany and International Günter Jakobiak (born in 1951) Member of the Management Board of Nordzucker AG from 1998 to April 30, 2008 Responsible for: Human Resources, Supply Chain (Purchasing, Production, Logistics) Agricultural markets are experiencing a boom, particularly last year. Higher demand for high-quality foodstuffs in developing countries and poor harvests in the last two years have driven prices for grain, maize and oil seeds to unheard-of levels. The greater volatility of agricultural markets demands a concept for securing raw materials. It also means that the partnership with beet farmers remains fundamentally important for our company. The focus will remain on the production of sugar from beet. By adding a second string to our bow we are moving towards becoming a company which generates energy from agricultural raw materials. Reducing CO 2 emissions to protect the climate and seeking greater independence from imported crude oil make it a politically and ecologically necessary to target the use of energy derived from renewable resources. The current discussion about competition with food crops and destruction of the rain forest is not an obstacle. Looking closely at the amount of land used for renewable resources, which represents only a small fraction of the total in Europe, this cannot be responsible for any deterioration in the food supply. Since December 2007 our subsidiary fuel 21 has been producing bioethanol from sugar beet in Klein Wanzleben. By working closely with the sugar factory in Klein Wanzleben, exploiting potential synergies and applying our know-how in beet processing we have taken a first key step towards developing a new business area for Nordzucker. We are convinced that this will prove to be an astute and forward-thinking move. Dr Martin Wienkenhöver (born in 1956) Member of the Management Board of Nordzucker AG since April 1, 2008 Responsible for: Supply Chain (Purchasing, Production Quality Management and Logistics) 6

11 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Nordzucker will continue to evolve. The demands of the market and the political framework are the benchmarks. Our heritage, a relationship of trust with beet farmers and shareholders as well as a common commitment to beet farming in Europe form the basis of our activities. The times are exciting, challenging and are changing Nordzucker a little every day. In order to become the leading company in the European sugar market and a respected competitor in the field of renewable energy we need courage and stamina. The production of sugar from beet is part of our heritage and defines our strategy: the production of sugar from beet and new horizons in the market for renewable energies. Our thanks go to all the staff for their ideas and the energy they exhibit everyday for Nordzucker. We thank our customers, suppliers and partners for the constructive and successful collaboration. And we thank you, our shareholders, for the trust you continue to place in Nordzucker. Nordzucker AG Management Board Hans-Gerd Birlenberg Dr Henrik Einfeld Günter Jakobiak Dr Martin Wienkenhöver Nordzucker 2007/2008 7

12 8 Management dialogue The Beet Goes On

13 Nordzucker 2007/2008 9

14 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes The Beet Goes On The Beet Goes On The Beet Goes On is the slogan for a new dawn. Identity as a success factor The dramatic changes to the market wrought by the World Trade Organisation s (WTO) export restrictions and the reform of the sugar market regime have confronted Nordzucker with a completely new situation. We are experiencing a period of drastic change, which is presenting our company with formidable new challenges. The reorganisation of the company began with a constructive change management strategy. A total of 170 management staff worked in 16 groups on our strategy map a road map for securing our future. The new mission statement gives us orientation and support for strategic and operating issues and challenges. It covers our vision and our mission as well as our goals, our perception of ourselves and our guidelines for leadership and working together. We want to be faster and better than other market participants. This means we must be prepared to draw the consequences at all levels and in all our processes. We have given this process the tagline, The Beet Goes On. It demonstrates our commitment to the sugar beet, combined with demanding growth targets. Values provide orientation The framework of the new Nordzucker strategy is our system of values, because values provide orientation and identity. So we looked very carefully at our company s traditions and successes and revisited the ideas behind them in the light of the changes that are about to take place. We identified the following fundamental values: courage, a focus on results, passion, sustainability, dependability and respect. We then interpreted the qualities these values represent in the context of current and future challenges and transposed them into a concrete guide for action. On a growth track Our vision and mission are to become the leading sugar company in Europe and also to be a driving force in the field of renewable energies. Sugar is natural energy and energy is life. This may still sound rather abstract, but in our economic targets it takes on a highly precise form. We are aiming for a market share of 20 per cent for sugar beet and sugar cane in Europe, and annual growth of ten per cent in the market for renewable energies. These targets are linked to 10

15 clear financial indicators: 15 per cent EBITDA margin, five per cent return on sales, 30 per cent equity ratio and ten per cent return on equity. These figures describe a healthy, performance-oriented company, which we intend to remain. We should also point out that these financial indicators are not new they were defined many years ago and vouch for the strategic vision in place at our company. resources. In a company of our size these alterations cannot take place overnight. We estimate that it will take 12 to 18 months until our mission statement is so embedded in the corporate culture that it becomes part of our DNA. To this end a process was launched in 2007 which brings the mission statement deeper and deeper into the company, starting with the management teams and spiralling out into the individual departments. A reorganisation for all to see All areas of our company are affected by market change. We are responding accordingly across the board, right down to the smallest organisational unit and drawing new strength from the available This is what we mean by, The Beet Goes On and so does Nordzucker. Nordzucker 2007/

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17 Agricultural commodities sources of food and energy Diverse opportunities Nordzucker 2007/

18 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Diverse opportunities Diverse opportunities Volatile price movements are a feature of current markets for agricultural commodities worldwide. Looking to the future Since the EU Commission opened up the European sugar market declining beet and sugar prices are a fact of life. The new sugar market regime and WTO restrictions will reduce Europe to the status of a bit player on the sugar market in future. Costly export licences make European sugar expensive, whilst the least developed countries (LDC) are allowed to import their products to Europe free of customs duties and contribute to the price decline. This revolution on the market required a clear survival strategy. Sugar production has high fixed costs. Sinking prices and demands for quota returns necessitated both cost savings and capacity adjustments such as the factory closures in Güstrow in Germany and Szolnok in Hungary. Beet itself has a future. With grain the potential for improving yields has been largely exhausted, but sugar beet continues to experience annual yield growth thanks to breeding and modern technology. In short: beet is getting more and more efficient and so will continue to be a highly profitable crop for farmers. New fields for the beet In the course of our strategic deliberations one thing was clear from the start. Nordzucker intends to remain one of Europe s key sugar producers. So instead of consolidation, our decision was to go for growth. We do not see the new market environment as a threat, but rather as an opportunity. We just have to live it. One simple thought shows where the opportunities lie. Sugar is food. However, sugar is also energy energy that can be used in the form of bioethanol and bionatural gas from sugar beet. With these two new market segments we are not only helping to make mobility cheaper and more environmentally friendly, but also to make Germany less dependent on imported energy. The prospects for our new market segments are good. A decision was taken at the EU spring summit in 2007 to reduce CO 2 emissions in the member states by 20 per cent by 2020 (compared with 1990). The corollary is that the market share of biofuels needs to rise to ten per cent in the same period. A resolution by the German Federal government from December 2007 commits Germany to going even further; cutting carbon 14

19 fuel 21 bioethanol plant in Klein Wanzleben emissions by 40 per cent and providing for an even larger market share for biofuels in the same timeframe. Bioethanol is the most common biofuel in the world. In contrast to other countries, however, the conditions for its rapid proliferation here in Germany still need work. Beet can be processed into vehicle fuel much more efficiently and quickly than other types of biomass. One can really say that the sugar beet is the ideal raw material for a mobile future. We immediately identified this as a huge opportunity for Nordzucker and have acted accordingly. Our start-up subsidiary fuel 21 produces bioethanol from homegrown sugar beet in Klein Wanzleben. The beets also come from land which was previously fallow or used for growing beet for export sugar. So there is no competition with the production of food crops. On the contrary: the more independent we become here from imported biofuel, the less arable land is lost for food production in the exporting countries. Bioethanol also offers our partners in the agricultural industry a new economic perspective. Nordzucker 2007/

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21 Environmentally friendly generation of bioenergy Cost efficiency and innovation Nordzucker 2007/

22 Cost efficiency and innovation Setting the course and setting off As well as technical, organisational and personnel matters, reducing our energy consumption also plays a key role for our growth track and for attaining our ambitious goals. So for years we have also been reacting to market developments with structural measures in our factories. By closing plants in Güstrow (Germany) and Szolnok (Hungary) we have been able to extend the sugar campaign in the other plants to nearly 120 days and thereby attain a higher capacity utilisation per plant. This reduces costs and increases cost-effectiveness. The structural measures in the factories also mean optimising our processes in such a way that a complete factory can be run with a maximum of 100 staff. The course is set: sugar beet will retain its importance. Bioethanol: a mobile future Vehicle fuels from sugar beet will continue to play a significant role. Not least because for the first time they make it possible not to develop engines restricted to existing fuels but rather to produce fuels specifically for engines. At the same time local fuel production reduces dependence on imports. We saw a great opportunity for Nordzucker in biofuels and acted accordingly. fuel 21 has been producing bioethanol from sugar beet in Klein Wanzleben since December Marketing challenges stem from the still modest demand and the high percentage of bioethanol being imported from abroad. Local production of bioethanol brings benefits for everyone, however. In many exporting countries the production of bioethanol takes place at the expense of food production, which is not the case with us. The less dependent we are on imports, the more land remains available abroad to secure crops for food. 18

23 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Cost efficiency and innovation Bio-natural gas: beet provides independence Another area with exciting prospects for Nordzucker is the production of bionatural gas in natural gas quality. By enhancing and purifying the gas in the course of sugar beet processing it is possible to achieve 90 per cent methane. This bio-natural gas is of sufficient quality for it to be fed directly into the natural gas supply. Consumption is possible independently of the place of production. We are currently running a pilot plant to determine Nordzucker s options in relation to the large-scale industrial production of bio-natural gas on a commercial basis. CO 2 : ahead by a nose on this ticklish issue The EU resolutions on the subject make CO 2 a key issue for Nordzucker in particular. Apart from the ecological aspects we are especially interested in the consequences and opportunities these developments will have for us. Saving energy in the sugar production process, for example, is becoming more and more important; especially how much CO 2 we can save in bioethanol production. Customer orientation: greater flexibility thanks to thick juice Until now we have only produced sugar during the beet campaign. Whatever was not put into storage during this period was not available for sale for the rest of the year. This meant that we were not able to react so flexibly to demand as we think we ought to in future. More flexibility in delivery is not only good for us, but also for potential customers. That is why customer orientation is the keyword in the thick juice campaign in Nordstemmen. Using thick juice enables us to extend our production period considerably, as thick juice can be conserved for much longer than beet. This means that we can now produce additional sugar in accordance with demand. Not only are we independent of the campaign season, but by efficienly utilising more of our plants capacity for longer we can also realise substantial cost savings. To do so we are investing in a 60,000 cubic metre thick juice tank. The pilot project for producing bio-natural gas from sugar beet at the site of the former sugar factory in Groß Munzel is analysing the prospects for large-scale industrial production. Using thick juice enables flexible sugar production to continue beyond the end of the campaign. Nordzucker 2007/

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25 Nordzucker, Cristal Union and ED&F Man European management Nordzucker 2007/

26 European management Its powerful distribution network in all regions of the EU makes Eurosugar the natural choice as an attractive partner for sugar-exporting developing countries. Setting course for Europe One consequence of the reformed sugar market regime will be that in future major customers will no longer consider small regional sugar suppliers to be strategic partners. We therefore need to grow and be perceived as a strong negotiating partner. By founding Eurosugar we have taken a key step in this direction. Eurosugar brings its three shareholders powerful strategic benefits. Nordzucker and Cristal Union are established sugar producers and ED&F Man is a global trading house with excellent contacts to sugar producers around the world. Together we can sell large quantities of sugar, which will result in a substantial reduction in relative sales costs. Imported sugar as a second string to our bow ED&F Man s market contacts are particularly important in relation to imports from African, Caribbean and Pacific (ACP) countries and from LDC. A large proportion of this sugar is not suitable for direct consumption and must be refined to bring it up to the accustomed quality level of European sugar. The aim is to present the LDC and ACP countries with a powerful distributor with national sales networks and a broad customer portfolio in all regions of the EU. Eurosugar is that partner, which makes it highly attractive for developing countries. We offer them reliability, sustainability and economic security a solid basis, which benefits all concerned parties. For sugar producers refining imported sugar is a great opportunity to optimise the capacity utilisation in their factories. The expansion of the Nordzucker factory in Chelmza, Poland, is already underway. This site is currently being reorganised and modernised so that imported sugar can be refined there. Test operations are due to start as early as this summer. Security of supply as a strategic advantage Within the EU Eurosugar will also be seen as a strategic supplier, offering its customers swift, local deliveries thanks to its size, its agricultural backers and its longstanding experience of efficient production processes. We offer these customers the necessary security of supply in Western and Central Europe, but also in Southern and Eastern Europe, where security of supply will become very much more important due to the loss of domestic sugar production. 22

27 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes European management Difficult transition phase During a transitional period up to 2010 the import of raw cane sugar is primarily restricted to traditional refineries in the EU. We are using this time to establish a foothold in the import business for white sugar for direct consumption in the EU. Despite this, lost sales due to the return of sugar quotas will be temporarily unavoidable and can only be made up from 2010 onwards with the liberalisation of raw cane sugar imports from developing countries. Sweet imponderability Slim is beautiful and sugar makes you fat that is the story we always hear in the media. Making food labelling obligatory and classifying products as good and bad is certainly the wrong route to take. A better approach would be to address the real cause of the problem, the fact that people eat badly and take less and less exercise. The solution lies in addressing causes, not bewailing symptoms. Capturing new potential In recent years the demand for sugar in the EU has remained relatively stable. Where we do expect more potential customers is from the many people who currently use glucose or isoglucose and are switching to sugar for financial reasons. Glucose is based on cereals and maize and the rising prices for these commodities increase the production costs. To remain profitable, producers have recently been obliged to put up their prices again and again. So while glucose is becoming more expensive on the one hand, sugar is getting cheaper on the other. For the European sugar industry this is a boon, as it improves its competitiveness versus cereal-based products. Nordzucker 2007/

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29 Group management report Growth from core competence Nordzucker 2007/

30 Group management report of Nordzucker AG Political environment Reformed sugar market regime enters its second year The sugar market regime in its final form, which has been in force since July 1, 2006, had a considerable impact on the financial year 2007/2008 for the Nordzucker Group. The reform of the sugar industry was intended to create incentives to return six million tonnes of sugar quotas to the European Commission due to the expected rise in sugar imports from ACP and LDC countries and the simultaneous restriction of sugar exports from the EU. A combination of financial incentives to return sugar quotas and the phased cuts in the reference price for sugar and the minimum price for beet were meant to Return of production quotas to the restructuring fund in the first wave (up to January 31, 2008) In per cent Total returned by the deadline of January 31, 2008 Bulgaria (22) Ireland (1) 100 Latvia (13) 100 Portugal (3) 100 Slovenia (19) 100 Slovakia (17) 72 Italy (10) 66 Greece (23) 50 Hungary (20) 49 Finland (12) 45 Spain (4) 43 Czech Republic (16) 22 Sweden (11) 20 Contrary to the expectations of the EU that countries from the climatic periphery of Europe would return their entire production quota, in fact nearly all EU member states returned a greater or lesser proportion of their quota. France (5) 15 Belgium (6) 14 Denmark (8) 14 Great Britain (2) 14 The Netherlands (7) 14 Austria (18) 14 Poland (15) 14 Germany (9) 13 Lithuania (14) 12 Romania (21) 4 26

31 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Political environment convince less competitive sugar producers to abandon sugar production. Production was principally intended to cease in the less productive peripheral regions of the EU. For the sugar marketing years 2006/2007 and 2007/2008 the reference price was still EUR per tonne. In 2008/2009 it drops to EUR and in 2009/2010 to EUR per tonne. The restructuring aid for abandoning sugar production also declines over the same period. For quotas returned in the marketing years 2006/2007 and 2007/2008 it was EUR per tonne of quota. In 2008/2009 it drops to EUR and in 2009/2010 to EUR per tonne. These amounts apply when production capacity is fully dismantled and are reduced if it continues to be used. Payments to the fixed-term restructuring fund are borne solely by the industry. The restructuring levy this required was EUR per tonne of quota in 2006/2007, rising to EUR per tonne of quota in 2007/ 2008 and sinking again to EUR per tonne of quota in 2008/2009. Voluntary return of quotas At first, however, the incentive system did not work properly. By January 31, 2007 only 2.1 million tonnes of sugar quotas had been returned to the EU restructuring fund. So on September 26, 2007 the Council of Agricultural Ministers passed further adjustments to the sugar market regime in order to achieve the target of six million tonnes. These included much greater incentives for beet suppliers to return quota delivery rights. The farmers receive a direct payment of EUR from the EU for every tonne of sugar quota returned. They also receive ten per cent of the restructuring aid for companies. Together, this amounts to some EUR 41 per tonne of relinquished delivery rights. The EU also decided to waive the restructuring levy for sugar companies for that part of the sugar quota which it had already withdrawn from the market in early March 2007 in the course of a preventative market withdrawal, if the corresponding quotas were returned. These improved incentives meant that by January 31, 2008 a further 2.5 million tonnes of sugar quota had been returned. Ireland completely ceased beet and sugar production in 2006 and was followed in 2007 by Lithuania and Slovenia. Of the major sugar-producing countries Italy (66 per cent or 1,049,000 tonnes) and Spain (43 per cent or 482,000 tonnes) returned large quotas to the restructuring fund. France cut its quota by 14.7 per cent or 542,000 tonnes and Germany s sugar quota declined by 13.3 per cent or 493,000 tonnes. Overall, EU countries returned 4,840,000 tonnes (24.4 per cent) of quota in the first wave up to January 31, This meant that cuts of 1.16 million tonnes still needed to be found, which were due to be returned in an additional phase by March 31, For this second return phase the same conditions apply as for the first. In 2010 the European Union will then reduce the quotas without compensation ( the final cut ) if the target reduction of six million tonnes of quota has not been attained by then. Bulgaria and Portugal, together with Ireland, Lithuania and Slovenia, make up the quintet of countries which have abandoned sugar production altogether. Nordzucker 2007/

32 Today, Nordzucker benefits from always having modified its factory structures continually and in good time. Nordzucker had already returned 13.5 per cent of the German production quota by January 31, In Poland Nordzucker returned 13.5 per cent, in Hungary 31.6 per cent and in Slovakia 10.5 per cent. The returns were made in exchange for the entitlement to an equivalent amount of restructuring aid. The drastic quota cuts implemented by the EU are intended to stabilise sugar prices in the EU. Taking account of future imports, primarily from least developed countries (LDC) within the framework of the everything but arms (EBA) trade agreement, production is supposed to match consumption. Production capacity has to be reconciled with the reduced sugar quotas, resulting in factory closures throughout the European Union. Nordzucker abandoned sugar production in Güstrow, for example, by resolution of the Supervisory Board on September 27, Production also ceased at the site in Szolnok in Hungary. Across the whole EU 48 factories have been shut down so far and another 12 closures have been announced. Export restrictions In the financial year 2007/2008 exports of non-quota sugar were no longer allowed. Export licences for quota sugar were also only issued restrictively and at high premiums. Nordzucker s quota sugar exports were therefore only slightly above the previous year s level. Market Global sugar production Market observers estimate worldwide sugar production for 2007/2008 at around 169 (167) million tonnes at raw sugar values. This is equivalent to a white sugar value of 155 (153) million tonnes. Global sugar consumption is forecast at 155 (151) million tonnes at raw sugar values. This would result in a sugar surplus of 14 million tonnes. The analysts predict that worldwide stocks will rise to some 55 per cent of consumption. EU exports amount to around 1.4 million tonnes. Imports to the EU have not changed from the previous year. The increase in global sugar production is primarily due to increases in Asia (China, India, Indonesia, Pakistan and Thailand). India deserves special mention, as in 2007/2008 it produced around 10 million tonnes of sugar more than in 2006/2007 and is responsible for 80 per cent of the worldwide growth in production. Substantial production capacities were built up there with government support last year, which led to overproduction and stockpiling. In order to avert a collapse of the Indian sugar industry the government subsidises exports, flooding the world market. India has developed from being a net importer to exporting sugar. It is generally assumed that the areas under cultivation for sugar in India will continue to grow. In Europe, Africa, North and Central America, however, sugar production remained stable, and even sank in Australia due to the weather conditions. South America s sugar production remained the same as the previous year. The low world market price for sugar meant that in the previous year ethanol production had climbed sharply. In the reporting year 2007/2008 ethanol production in Brazil continued to rise. South American sugar exports sank by more than ten per cent due to high costs of transport. 28

33 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Political environment Market Sugar sales World market prices for sugar, Source: LIFFE white sugar trading, London No. 5, as of April White sugar $/t FOB 200 White sugar EUR/t FOB Jan 08 Feb 08 Mar 08 Apr 08 World market price After moving sideways for the first quarter of 2007 at around EUR 255 per tonne, the world market price for sugar dropped steadily to EUR 193 per tonne by November It has since improved to EUR 242 in February Lower prices for sugar compared to other agricultural commodities has aroused the speculative interest of traders and hedge funds and led to large amounts of capital being invested in sugar. This is partly responsible for the increase in price. EU sugar production EU sugar production in the sugar marketing year 2007/2008 stayed at the same level as the previous year at 15.9 million tonnes white sugar value. Consumption of 17.2 million tonnes at white sugar values was also nearly unchanged year on year. Whilst areas under cultivation declined by around four per cent, good weather conditions meant that the sugar yield went up. The EU decision in autumn 2007 not to make any further withdrawals from the sugar market led to a sharp short-term increase in competition, particularly on the spot markets in the east of the EU. Sugar sales Eurosugar On May 25, 2007 the German competition authority approved the establishment of Eurosugar in Paris. Nordzucker, Cristal Union from Paris and ED&F Man from London have combined their European sugar sales operations as equal partners in the company. Since October 2007 the start-up has marketed some two million tonnes of sugar in the EU and supplies customers throughout Europe. Eurosugar is a direct response to the new dynamics of the EU sugar market and enables the three partners to expand their operations at EU level. This relates to both joint Thanks to its size, flexibility and regional presence Eurosugar offers its customers a powerful distribution network with long-term prospects. Nordzucker 2007/

34 Eurosugar is prepared for imports from third countries. Eurosugar ensures the required security of supply and just-in-time delivery for customers almost anywhere in Europe. marketing of production from Germany and to imports from developing countries. The launch of the company was necessary to secure sugar trading throughout Europe and to supply consumers across Europe with the highest quality under EU standards over the long-term. Challenges of the sugar market regime The reform of the EU sugar market regime will reduce the amount of sugar available from beet grown in the EU at roughly stable levels of demand. The declared aim of the Eurosugar partners is to supply consumers in the EU s growing deficit markets such as the Mediterranean states and Ireland, with quality sugar and services. Eurosugar s special structure also allows the company to play an active role in marketing increasing volumes of sugar imported from ACP and LDC countries in the EU. European distribution By establishing Eurosugar the three companies involved are bundling their strengths in sales, logistics and purchasing. Above all, and in contrast to most of its competitors, Eurosugar can supply the largest industrial users Europe-wide with the highest quality sugar. Eurosugar has sales offices for sugar in Germany, France, Poland, Slovakia, Hungary and Spain. In October 2007 Eurosugar set up the joint venture ESI with the Italian SFIR to market EU and imported sugar in central and southern Italy. There is also a joint venture with Sugarpartners for sales in Ireland. Sugar sales volumes The volume of sugar sold by the Group sank by ten per cent year on year to (1.862) million tonnes. Sales volumes at Nordzucker AG sank from million tonnes the previous year to million tonnes. The decline is principally due to the WTO export ban for non-quota sugar, which in the previous year accounted for 180,000 tonnes. Strong domestic markets The domestic markets in Poland, Hungary and Slovakia developed very well, growing by some 36 per cent. At the same time these countries sold substantially less sugar to intervention agencies. The ban on nonquota sugar exports also led to a considerable drop in total sales volumes. These sank in Poland from 171,000 tonnes in the previous year to some 150,000 tonnes. Sales volumes in Slovakia went down from 100,000 tonnes the previous year to 93,000 tonnes and in Hungary sank from 186,000 tonnes to around 146,000 tonnes. In contrast, sales volumes in Serbia rose to 217,000 tonnes from 197,000 the previous year. Price competition in Eastern Europe Whilst prices in Germany performed well, there was price competition in Eastern European countries due to volume pressure. This effect was strongest in Poland, but price competition also had a negative impact on revenues in Slovakia and Hungary. In Hungary it was large volumes of sugar supplied under import quotas for the Balkan states in particular which led to the heightened competition. 30

35 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Sugar sales SweetFamily Concentration and competitive pressure in the retail sector In the food retailing sector it was primarily the private labels business which suffered from increasing international competitive pressure. On the other hand the concentration process in food retailing also continued unabated. Edeka Group strives to acquire the Plus discount supermarkets and Metro sold its Extra markets to Rewe. This means that the assortment on sale at the new retail chains will change, which has no effect for Nordzucker for 2008 at Plus and is negative at Extra. Growth primarily in Slovakia and Germany In Germany Nordzucker increased its market share of household sugar slightly in the reporting year. Revenues almost doubled in Slovakia, but declined slightly in Hungary. recognition only a few years after its launch and the umbrella brand SweetFamily is very well-positioned in European countries. Pellets 2006/2007 was an exceptional year for the grain and animal feed market. Drought in Europe, Australia and parts of Argentina resulted in a considerable fall in grain harvests worldwide. Fodder prices also picked up due not only to a European, but a global shortfall in grain. This development was reinforced by enormous, billion-dollar capital inflows into these commodities markets from newly raised commodities funds. Pellet prices rose from EUR 110 per tonne at the beginning of 2007 to EUR 150 per tonne at harvest time and peaked at EUR 200 per tonne in the 2007/2008 campaign. Trend towards natural products Nordzucker was particularly successful with products following the natural trend. These especially include brown sugar, brown sugar for tea and cane sugar. SweetFamily gains market share Market share in branded goods grew again compared to the previous year. Quick & Easy, which was launched in 2006, was particularly successful and sales were increased even further by intensive tasting campaigns. Greater promotion activity for preserving and tea sugar also reaped rewards. Nordzucker was also able to improve listings for more minor products. The SweetFamily brand now enjoys high This meant that Nordzucker s pellet revenues increased by some 25 per cent year on year. As grain prices remain firm we are anticipating stable pellet prices for the 2008/2009 campaign. Molasses The molasses market did not keep step with the prices rises in the grain and animal feed markets. Good beet quality in Germany resulted overall in lower quantities of molasses than expected. This shortfall was replaced by considerable quantities of imported cane molasses, however, in order to cover increased demand, especially from the mixed fodder industry. Nordzucker 2007/

36 The price for molasses rose by around seven per cent year on year in the 2007/ 2008 campaign. As further reductions in beet cultivation and therefore less molasses are expected, we anticipate somewhat higher prices for beet molasses in the coming year. Beet cultivation and campaign A varied growing year 2007/2008 In 2007/2008 the sowing and development of the beet differed widely in Nordzucker s various growing regions. Early sowing was followed by a long dry period of sunny weather in Northern Germany and Poland. The summer was good for beet growth with moderate temperatures and high rainfall. In contrast Slovakia, Hungary and Serbia experienced a real summer drought with above-average temperatures. Group campaign results Poland Cultivation area (ha) Beet yield (t/ha) Sugar content (%) Sugar yield (t/ha) Campaign length (d) , , Berlin Poznan Warsaw Braunschweig Slovakia Germany Cultivation area (ha) 11,194 10,384 Cultivation area (ha) 140, ,225 Beet yield (t/ha) Beet yield (t/ha) Sugar content (%) Sugar content (%) Sugar yield (t/ha) Sugar yield (t/ha) Campaign length (d) Campaign length (d) Bratislava Budapest Hungary Cultivation area (ha) Beet yield (t/ha) Sugar content (%) Sugar yield (t/ha) Campaign length (d) , , Belgrade Serbia Cultivation area (ha) Beet yield (t/ha) Sugar content (%) Sugar yield (t/ha) Campaign length (d) , ,

37 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Sugar sales Beet cultivation and campaign Campaign The longest campaign in Nordzucker s history was characterised by unusually high rainfall during the months of beet processing. This posed considerable challenges for all those involved in the harvest, transport and processing of beet, which together were successfully overcome. In some areas of Northern Germany the beet harvest had to be interrupted both in early October and in November due to heavy rain. Thereafter some deliveries continued to have problems with extremely heavy soiling. Processing was also hampered by deliveries containing rotten beet from flooded areas. In Serbia the campaign was delayed for more than a month as heavy rainfall caused the supply of beet to break down altogether. The average length of the campaign was 117 (79) days in Northern Germany, 94 (75) days in Poland, 68 (68) days in Hungary, 106 (95) days in Slovakia and 118 (89) days in Serbia. High beet yields For the Group as a whole the yield was 56.6 (52.0) tonnes per hectare at a sugar content of 16.8 (17.2) per cent. In Central and Eastern Europe the picture was mixed. Poland had a very good campaign with excellent beet yields of 60.5 (51.4) tonnes per hectare with sugar content of 17.7 (16.4) per cent. The sugar yield per hectare of 10.7 (8.4) tonnes was well above the previous year s figure. Slovakia, Hungary and Serbia were less fortunate, due to poor weather conditions. Despite improved methods of cultivation the extreme summer drought in these regions together with unusually high temperatures resulted in below-average yields. In Slovakia the beet yield of 47.0 tonnes per hectare fell short of last year s figure of The sugar content of 16.4 (17.7) per cent and the sugar yield of 7.7 (8.7) tonnes per hectare were also lower than the previous year. The beet yield in Hungary came to 41.9 (50.5) tonnes per hectare. The sugar content of 16.4 (17.1) per cent and the resulting sugar yield of 6.8 (8.6) tonnes per hectare therefore also failed to reach the previous year s levels. Serbia achieved a beet yield of 45.3 (48.4) tonnes per hectare, which together with a sugar content of 14.8 (15.2) per cent delivered a sugar yield of 6.7 (7.3) tonnes per hectare. Record levels for beet yield in Northern Germany and Poland. Unfavourable weather conditions in Slovakia, Hungary and Serbia. In Northern Germany the beet yield was a record 61.7 (54.0) tonnes per hectare. The sugar content of 17.2 per cent was slightly below last year s figure of 17.9 per cent. The sugar yield per hectare of 10.6 tonnes was also extremely high and well above last year s figure of 9.6. Nordzucker 2007/

38 Sugar production Nordzucker Group in millions of tonnes white sugar values / / / / / / / / / /08 Production launch for bioethanol in December 2007 in Klein Wanzleben (Saxony-Anhalt). Land under cultivation In Northern Germany the amount of land used for growing sugar beet rose by some 20 per cent (roughly 24,000 hectares, from 117,000 to 141,000) in 2007 due to additional contracted volumes for ethanol beet. Despite market withdrawals in Germany, Poland, Hungary and Slovakia the Group s total land under cultivation increased by some 30,000 hectares. Nordzucker s beet farmers were heavily involved in the voluntary return of delivery rights. By January 15, 2008 more than seven per cent of all delivery rights were slated for return, principally by farmers from Mecklenburg-Western Pomerania (around 30 per cent) and Schleswig-Holstein (more than 40 per cent). This will enable improvements to be made to the cultivation structure and beet logistics in future. fuel 21 In December 2007 the bioethanol plant went into operation at fuel 21 GmbH & Co. KG, a wholly-owned Nordzucker subsidiary. It is the first plant in Germany to produce bioethanol solely from sugar beet. From now on some 130,000 cubic metres of bioethanol will be produced annually in an annexe plant together with the sugar factory in Klein Wanzleben. This has the advantage that the existing sugar factory infrastructure can be used as well. The beet processing capacity was raised by 3,000 tonnes per day for this purpose. The first ethanol was supplied at the beginning of As the amount of bioethanol required to be blended with vehicle fuels is to rise from two per cent in 2008 to up to 3.6 per cent in 2010, this represents a sustainable secondary business area for the Nordzucker AG. These 3.6 per cent are the energetic equivalent of the E 5 vehicle fuel which is covered by all current standards and is proven to be suitable for all vehicles. Bio-natural gas A test and pilot plant for producing biogas from beet and press chippings and other substrates began operations on the site of the former sugar factory in Groß Munzel. The plant will carry out extensive trials on existing and new technologies for producing biogas. A subsidiary of E.ON Climate & Renewables GmbH is taking part in the project, which will be in a trial phase until the end of the year. The aim of the pilot project is to ascertain whether biogas from beet and chippings can be produced throughout the year for subsequent feeding into the gas network as bionatural gas. 34

39 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Beet cultivation and campaign Environment Employees Environment Employees Nordzucker strives for quality in every respect and this is reflected in our corporate policy and environmental guidelines, which form a binding framework for all our staff. Emissions Nordzucker holds a leading position in the German sugar industry in terms of steps to implement the Kyoto Protocol, having voluntarily reduced its C0 2 emissions by more than 45 per cent of total emissions since The first emissions trading period ( ) has now come to a close. At the end of 2007 applications were made for certificates for the new trading period, which began on January 1, 2008 and runs until the end of Environmental certifications Continual improvements in environmental performance have long been an important issue for Nordzucker. Since 1995 all German sites have taken part in the European eco management and audit scheme (EMAS II). They are also certified under DIN ISO 9001:2000 (quality management) and 14001:2004 (environmental management). The annual site inspection took place during the 2007 campaign. The environmental statements required under EMAS were validated with the current figures from the 2007 campaign in March Fuel 21 is due to be certified in October The average number of employees in the Nordzucker Group dropped to 2,861 (3,616) for the year. This decline was due to early retirement schemes and other restructuring measures. Vacancies continued to be filled from within the Group wherever possible. Factory closures in Güstrow and Szolnok Nordzucker AG shut down its factory in Güstrow following the beet campaign The decision was taken by the Management and Supervisory Boards on September 27, The closure affected 99 staff members and 14 apprentices. The main reason for this adjustment to the factories structure was the reform of the sugar market regime, which is provoking a sharp reduction in sugar produced in the EU. The staff were covered by the redundancy and redeployment scheme in place since 2005, which provides for early retirement and job offers in other Nordzucker factories. The apprentices in their third and fourth years of training will complete their apprenticeship in Güstrow, and alternatives places with companies in the area have been found for those in their first and second years. Early retirement agreements were signed with 23 employees and individual solutions found for another two. Job offers at other Nordzucker sites in Germany have been made to 74 members of staff. Nordzucker is thereby assuming its social responsibility for the employees concerned in exemplary fashion. Staff and apprentices from the factory in Güstrow find new work in the Nordzucker Group or in the region. Nordzucker 2007/

40 Eurosugar s head office in Paris draws on Nordzucker s specialist departments in Braunschweig in order to avoid duplication. The developments on the European sugar market had prompted Mátra Cukor to return a third of its quota for Hungary. This was accompanied by the closure of the factory in Szolnok. The second stage of the sugar market reform spurred the farmers and producers to return part of their delivery rights and their quotas. The Hungarian farmers then pressured the sugar producers to reduce the quota share and return more than 50 per cent of the original sugar quota for Hungary to the EU. Together with employee representatives the company put together a redundancy package for the staff in Szolnok. Eurosugar The launch of Eurosugar gave Nordzucker and its staff a much more international perspective. Former Nordzucker employees now not only work at Eurosugar s German office in Braunschweig but also at the headquarters in Paris. Those now working for Eurosugar have transferred their contracts of employment from Nordzucker to Eurosugar S.A.S. fuel 21 Due to the specific requirements of this innovative business, special working hours have been developed and implemented for staff at Fuel 21 GmbH & Co. KG. The plants are mostly run by former Nordzucker employees, who have been transferred to newly established operating companies. Vocational training Nordzucker attaches great importance to the proper vocational training of young employees. On average over 2007/2008 there were 96 (146) apprentices in the Group. The number of apprenticeships available is deliberately higher than Nordzucker s own recruitment needs, in order to give as many young people as possible a solid foundation for their later career. Average number of employees in the Nordzucker Group for the year (in Germany/Foreign countries) 2007/08 1,512 1,349 2, /07 1,657 1,959 3, /06 1,797 1,023 2, /05 1,918 1,540 3, /04 1,894 1,864 3, /03 1,769 1,706 3, /02 2,087 1,965 4, /01 1,470 2,469 3,939 Brain Pool The Nordzucker Brain Pool is the modern equivalent of a suggestion box and reflects the performance, creativity and commitment of the workforce. It is the pool for suggestions for improvements developed by staff directly at their workplace. Over time the quality of suggestions has improved considerably. This creativity and commitment brings benefits to both staff and company. In 2007 suggestions were mainly made for further improvements to energy consumption as well as for improvements in health and safety at work, efficiency and employee satisfaction. 1999/00 1,994 1,994 Germany Foreign countries 1998/99 1,908 1,908 36

41 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Employees Financial and earnings situation In 2007, 120 ideas out of a total of 230 were approved by management. Total bonuses of EUR 36,000 were paid to staff. Implementing the ideas enabled Nordzucker to make cost savings of about EUR 853,000 in Financial and earnings situation Earnings situation Nordzucker Group reported highly respectable consolidated net income after minority interests of EUR 70.1 million in the financial year 2007/2008, following EUR million the previous year. The financial year 2007/2008 was characterised by the comprehensive measures taken to adapt to the very different political parameters set for the EU sugar market. Fundamental structural decisions such as the return of quotas and the corresponding capacity adjustments affected the results and led to both positive and negative non-recurring items. Consolidated net income is some 30% below the result for 2006/2007. Nordzucker has adapted its corporate strategy to the new political environment and has risen to the challenges posed by the reform of the sugar market regime. The European distribution subsidiary Eurosugar was set up in 2007 for example, the bioethanol plant in Klein Wanzleben began operations and a test facility for bio-natural gas was established in Groß Munzel. The return of quotas was also turned into an opportunity. Nordzucker offered additional compensation payments to beet farmers in regions further away from the Nordzucker factories, which meant that the cultivation structures and the freight distances could be optimised at the same time as quotas were surrendered. The decline in revenues which followed automatically from the changes to the sugar market regime, particularly due to the loss of export opportunities outside the EU, was made up for at Group level by the acquisition in Serbia and the positive developments on markets for by-products. Revenues and earnings Group revenues rose year on year from EUR 1,233.9 million to EUR 1,300.1 million. Nordzucker AG s revenues in Germany of EUR million were just above last year s figure of EUR million. The good performance of markets for animal fodder led to a considerable rise in revenues for by-products. The decline in revenues from sugar, especially due to the loss of C-sugar exports, was made up for by higher revenues from byproducts and increased trading revenues. The relatively stable market situation in Poland and Slovakia enabled the previous year s revenues to be maintained there, but increased competition resulted in a slight drop in revenues in Hungary. Due to the timing of the acquisition last year revenues for the investment in Serbia were only counted for half the year, so this year they have more than doubled, in line with budget. Revenues from pellets rose by some 25 per cent year on year. Consolidated revenues 2007/2008 by country in per cent Others 14% Germany 57% CEE countries 15% Rest of the EU 14% Nordzucker 2007/

42 The increase in stocks of EUR 74.5 million is principally due to greater production volumes in comparison with last year. Including this increase in stock, total revenues rose to EUR 1,376.5 (1,271.0) million or 8.3 per cent above last year s figure. Staff expenses for the Group rose slightly from EUR million in the previous year to EUR million. This includes provisions of EUR 16.2 million for redundancy payments and early retirement resulting from the factory closures in Güstrow and Szolnok. In the past two years Nordzucker has contributed almost EUR 500 million to the restructuring fund. Together with the production levy, the restructuring levy of EUR (126.40) per tonne of quota which came into effect during the 2007 campaign as part of the reformed sugar market regime for quota sugar is included in the cost of materials and services totalling EUR (201.1) million. The cost of materials and services also increased due to the long campaigns, high energy costs and special payments to beet farmers. In total the cost of materials and services went up to EUR 1,006.4 (872.8) million. Other operating income of EUR million was EUR million above the previous year s figure of EUR 60.8 million. This rise is primarily due to the compensation payment of EUR million from the restructuring fund as part of the return of quota. Depreciation, amortisation and impairment charges almost tripled year on year to reach EUR (49.6) million. This includes extraordinary depreciation of EUR 44.9 million in connection with the closure of the factories in Güstrow and Szolnok and write-downs on additional quotas purchased in 2006 on their return in These related primarily to Germany and amounted to some EUR 7.0 million in total. The total figure also includes extraordinary depreciation/ amortisation of EUR 24.9 million on property, plant and equipment in Slovakia and of EUR 24.0 million for goodwill in Serbia. Apart from these non-recurring items, scheduled depreciation and amortisation was roughly the same as the previous year. Consolidated EBIT in EUR m HGB IFRS / / / / / / / / / /08 38

43 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Financial and earnings situation Other operating expenses were higher than the previous year at EUR (118.1) million. This increase results primarily from the freight bonus paid to beet farmers as part of the return of quotas for Germany and from the outstanding demolition costs for the factories in Güstrow and Szolnok. Operating earnings (EBIT) for Nordzucker Group in line with IFRS were EUR million, after EUR million the previous year. With revenues stable the higher restructuring levy, expenses for adjustments to the factory structure and extraordinary depreciation on the return of quota depressed earnings. The payment from the restructuring fund mitigated these one-off effects. Thanks to stable revenues and an improvement in total revenues as well as strict cost discipline in current operations, operating earnings are only EUR 65.1 million below the figure for the previous year, which was denoted by positive non-recurring items. Net interest improved by EUR 5.7 million year on year. Overall, the net financial loss of some minus EUR 10.2 (minus 11.7) million was somewhat better than the previous year. The improvement in the net financial loss led to operating earnings before taxes of EUR 99.7 (163.3) million. After income tax at a lower rate of some 20 (30) per cent due to the corporation tax reform, consolidated net income in line with IFRS amounts to EUR 80.0 million. This fell short of the previous year s figure of EUR million. Accounting for the share of earnings attributable to minority shareholders of EUR 9.9 (9.5) million resulting from the investment in Serbia, net income after minority interests amounts to EUR 70.1 (105.5) million. Balance sheet and cash flow Cash flow from operating activities of EUR -3.2 (149.4) million was well below the figure for the previous year. It was reduced by the amount of other non-cash income, which includes the entitlement to EU restructuring aid. Cash flow for investing activities of EUR (44.4) million includes capital expenditure at fuel 21 GmbH & Co. KG, Klein Wanzleben and the payment for purchasing additional quotas from the previous year. Including cash flow from financing activities of (minus 64.9) million results in cash and cash equivalents at year-end of EUR 28.8 (86.9) million. Breakdown of the assets and liabilities making up the 2007/2008 balance sheet total Consolidated figures as per IFRS in EUR m 1,835 1,835 51% 34% 15% Assets Long-term assets Inventories Other short-term assets 40% 24% 36% Equity & liabilities Equity Long-term liabilities Short-term liabilities Nordzucker 2007/

44 Investment in fuel 21 s bioethanol plant made up for part of the decline in fixed assets due to factory closures. The consolidated balance sheet total for the Nordzucker Group was EUR 1,834.7 million, well above the previous year s figure of EUR 1, Property, plant and equipment declined from EUR million to EUR million due to the amortisation of EUR 24.0 million on goodwill of the investment in Serbia and extraordinary depreciation on property, plant and equipment of EUR 69.8 million due to factory closures in Güstrow and Szolnok and the difficult conditions in Slovakia. Capital expenditure on the bioethanol plant for fuel 21 and capital expenditure by Nordzucker AG counteracted the decline. The substantial rise in other long-term assets from EUR 0.3 million to EUR million is largely accounted for by the entitlement to restructuring aid of EUR million from the restructuring fund. Stocks of finished goods and merchandise rose from EUR million to EUR million. This increase stems primarily from greater sugar production in the 2007 campaign, the inclusion of the higher restructuring levy in the production costs and the first-time production of thick juice. Current receivables and assets climbed from EUR million to EUR million. Receivables from related parties rose due to the establishment of Eurosugar S.A.S., which took over Nordzucker s sugar distribution operations. Cash and cash equivalents dropped from EUR 86.9 million to EUR 28.8 million. The equity ratio for the Group was 39.9 per cent compared with 41.4 per cent the previous year. Shareholders equity rose as a result of positive earnings figures to EUR (683.0) million. The increase of some EUR 17.7 million in other long-term provisions results from provisions made in connection with the factory closures. Both short-term and long-term financial liabilities went up as of the reporting date due to the first time utilisation of the B tranche of the syndicated loan. This meant that short-term financial liabilities rose from EUR 90.5 million to EUR million and long-term financial liabilities from EUR to EUR million. Other short-term financial liabilities declined, however, by some EUR 74.2 million. The balance of long-term and short-term financial liabilities and cash and cash equivalents of EUR 28.8 (86.9) million results in net debt of EUR (129.5) million. The reasons for the higher net debt are the investment in fuel 21, the acquisition in Serbia and the purchase of sugar quotas from the previous year. 40

45 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Financial and earnings situation Consolidated net debt in EUR m HGB IFRS / / / / / / / / / /08 Profitability target achieved The Management Board of Nordzucker AG steers the company for profit on the basis of corporate targets which are oriented towards the capital markets. These include meeting certain financial indicators at Group level. In the financial year 2007/ 2008 the Group exceeded all these targets. Total operating profitability was 18.6 per cent (target: above 15 per cent), return on revenues was 6.2 per cent (target: above 5 per cent), the equity ratio was 40 per cent (target: above 30 per cent) and the return on equity was 10.7 per cent (target: 10 per cent). Capital expenditure 2007/2008 In the reporting year the Nordzucker Group invested EUR (113.6) million in property, plant and equipment and intangible assets. This figure is above that for the previous year and includes in particular capital expenditure by fuel 21 GmbH & Co. KG in Klein Wanzleben. Investment was also required in the sugar factory in Klein Wanzleben to adapt it to the bioethanol plant. Sugar Capital expenditure in the reporting year was mainly focused on adapting factories to the new bioethanol plant in Klein Wanzleben, on market driven innovation and improvement in product quality and on reducing energy consumption. The main item was the increase in capacity in the Klein Wanzleben factory and the related adaptations to the bioethanol plant. The focus of capital expenditure in 2007/2008 was on the bioethanol plant and the sugar factory in Klein Wanzleben. Nordzucker 2007/

46 Investments by the Nordzucker Group in EUR m HGB IFRS / / / / / / / / / /08 Cutting costs by modernising and redeploying existing machinery within the Group. Further alterations were made in Schladen and in the Nordstemmen factory, where a thick juice tank was fitted. Transferring the machinery no longer in use in Groß Munzel, particularly moving the pulp presses to Uelzen and the vaporiser to Nordstemmen, enabled energy consumption to be reduced. The closure of the factory in Groß Munzel also made it necessary to build a new delivery station at the remaining liquid sugar plant there for sugar from other factories. At the same time alterations were made to comply with higher environmental specifications regarding air emissions and waste water in the factories at Uelzen, Nordstemmen, Szerencs (Hungary), Opalenica and Chelmza (Poland). The modernisation programme also continued for the process control systems in Nordstemmen and Szerencs (Hungary). The programme for continuously improving beet yard standards was also ongoing, and included transferring beet processing from the factory in Wierthe to Clauen. Further optimisation work was carried out at the service centres in Uelzen, Nordstemmen and Klein Wanzleben to improve product and service quality. Altogether, Nordzucker s factories throughout Europe are technically very well equipped and amongst the best in the world for beet processing. fuel 21 The construction of the bioethanol plant for fuel 21 GmbH & Co. KG, Klein Wanzleben, was the largest single investment last year. Building work went on for 15 months and production began in Germany s first bioethanol plant in December The plant has a daily capacity of 400 cubic metres of bioethanol and operates all year round solely on substrates containing sugar. It was designed as an annexe to the existing sugar factory in Klein Wanzleben, in order to generate synergies for the benefit of the bioethanol production. 42

47 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Financial and earnings situation Hübner Medopharm The restructuring work taking place at the Hübner Group is still underway. Since spring 2006 Nordzucker has been gradually assuming operational responsibility on the ground and has begun introducing an improvement programme, with some initial success. Hübner Group had a slightly positive result in Melasse-Extraktion-Frellstedt Melasse-Extraktion-Frellstedt GmbH is to cease operations in The decision was taken by the two shareholders Nordzucker and Berlin-based Dr Wolfgang Boettger Group. Despite all the efforts made and cost reductions achieved so far, it is no longer possible to produce liquid sugar from molasses economically and sustainably. One of the reasons is that the price for molasses has already risen sharply as a result of the decline in supply following the EU quota cuts. The other is the massive drop in sugar prices dictated by the new European sugar regime. Research and development In 2007/2008 Nordzucker continued to invest in developing products and technologies, in quality assurance and customer service. The Product Development and Technical Service department is working on developing new products and formulas as well as on sensors and process engineering issues. In addition to improving technical production routines in the sugar production, one important aspect of the process engineering work were the preparatory investigations for starting and running the bioethanol plant at fuel 21. Other key tasks involved application consultancy for customers of Nordzucker AG and Eurosugar as well as the effective use of research networks. Dividend proposal A proposal will be tabled at the Annual General Meeting of Nordzucker AG to distribute a dividend of EUR 0.48 (0.48) per common share. This amounts to a total dividend payment of EUR 23.2 million. In addition EUR 13.2 million is to be transferred to retained earnings. Rising costs and declining earnings put an end to sugar extraction from molasses. Total dividends, Nordzucker AG in EUR m / / / / / / / / / /08 Nordzucker 2007/

48 Quota returns: EU s reform target nearly reached. Risk report Nordzucker has a comprehensive system in place throughout the company for the early identification and permanent monitoring of risk as well as for risk measurement and avoidance. The integrated risk management system is used to identify risks, opportunities and the appropriate steps fully, quantitatively and consistently and to include them in operational and strategic planning. Efficient risk management methods are developed and applied continuously to minimise risks. The analysis of operating and strategic decisions always takes risk aspects into account. The Group-wide reporting and controlling system ensures that all decision makers are continually informed, if necessary at short notice. Political and legal risks The final cut The politically mandated reduction is the amount of sugar produced in the EU set a new framework for the sugar industry and beet farming. Reducing Nordzucker Group s sugar quota to million tonnes unavoidably results in a loss of sales for quota sugar. Whether the quotas returned by Nordzucker will suffice to avert another quota cut altogether, this time without compensation, in 2010 ( the final cut ), depends on the amount of quota returned by our competitors and the EU Commission s assessment of the market. On the basis of current developments Nordzucker is assuming that there will be no final cut, or else only a minor one. Supplying the EU market with sugar requires sufficient quantities to be imported into the EU after the cut in quotas. In 2007 the opportunities for importing sugar from LDC and ACP countries were therefore adjusted accordingly. Imports from LDC and ACP countries On December 20, 2007 the EU foreign ministers decided to open up the sugar market for all ACP countries. The development initiative everything but arms, which previously provided for duty-free imports from the least developed countries (LDC) from October 1, 2009, is to be supplemented by a transitional arrangement from October 1, 2008 for the 40 LDC which are also ACP countries (states from Africa, the Caribbean and the Pacific). Export opportunities for these countries are to be broadened considerably. From October 1, 2009 the remaining 37 ACP countries may also export unlimited amounts of sugar into the EU free of customs duties. Thresholds have been set of 1.38 million tonnes for 2009/2010 and 1.45 and 1.6 million tonnes thereafter. At the same time a total import volume of 3.5 million tonnes may not be exceeded. Punitive customs duties will be levied from the 37 ACP countries which are not amongst the LDC if these thresholds are not respected. LDC themselves may continue to import duty-free, however. The reduction of the sugar quota and opening the market for more imports are changing the sugar market dramatically. Nordzucker and the distribution company Eurosugar see this scenario as an opportunity to exploit new markets in refining raw cane sugar. 44

49 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Risk report Market withdrawal 2008/2009 To maintain pressure on market participants to take part in the second wave of quota returns up to March 31, 2008, the EU Commission decided to forego a preventative market withdrawal in March However, the Commission reserves the right to carry out a market withdrawal for the sugar marketing year 2008/2009 if participation in the second wave of quota returns is not high enough. The decision is to be announced in October WTO The Doha round of WTO negotiations which began in 2001 in the Gulf state of Qatar has still not been brought to a close. It has not been possible to sign a new trade treaty even after seven years of discussions. The 151 member states were not able to agree either on cutting agricultural subsidies or on reducing customs duties on industrial and agricultural products. On the one hand the EU and the USA are striving for market access to the rapidly growing emerging economies to open up sales opportunities for their companies there. On the other they remain critical of demands to open their domestic markets for the import of agricultural produce from developing countries. Market risks Securing raw materials The new sugar market regime also alters the conditions on the market for the raw material sugar beet. In the reporting year the second phase of the drastic price cuts for sugar and sugar beet passed as part of the sugar market reform came into effect. Despite the compensation payments for sugar beet laid down by the EU the relative attractiveness of sugar beet compared with other arable crops will change over time, as the payment is decoupled from production. Over the past year the prices of alternative crops such as maize, wheat and oilseed rape have risen by up to 80 per cent, whilst beet prices have remained stable and will go down in future due to the sugar market regime in the EU. This confronts Nordzucker with new risks in securing its raw materials. In order to ensure that the sugar factories are supplied with sufficient quantities of beet at the best price available in the long term, Nordzucker intends to use all possible opportunities to raise yields and save costs at all levels of beet cultivation. Cost-cutting organisational structures are also being developed jointly with the beet farmers in the fields of beet cultivation, logistics and consultancy. At present cultivating quota beet remains superior to other arable crops. In the medium term differences in the competitiveness of the sugar beet will first lead sugar beet farming to migrate within regions and then between growing regions. Sugar The assumption is that the sugar market will suffer from fluctuating supply volumes during the transformation phase in the years ahead, as production quota is returned to the EU s restructuring fund and the volume of future cane sugar imports is difficult to estimate. Nordzucker is responding to the growing competition, the increasing internationalisation of the sugar business in the EU and the ensuing market risks by establishing the international Securing raw materials is the challenge of the future. Nordzucker 2007/

50 Nordzucker reduces surplus demand for sugar in the EU by refining raw cane sugar in Poland. Political discussions dominate energy and environmental policies. distribution company Eurosugar. In order to cover the future shortfall between sugar production and consumption in the EU, Nordzucker intends to enter the market for converting raw cane sugar. Investment is currently taking place at the factory in Chelmza, Poland, in order to convert up to 150,000 tonnes of raw cane sugar there per year from Bioethanol Nordzucker intends to develop bioethanol systematically as a new business segment via the wholly-owned subsidiary fuel 21 GmbH & Co. KG in Klein Wanzleben. In addition to creating new sales opportunities for sugar beet the Group is exploiting cost advantages from coupling bioethanol production to sugar production as well as its expertise and long-term, trusting and dependable relationships for procuring raw materials. In view of the increasingly volatile markets for agricultural products, some of the main risks of bioethanol production lie in the security of raw material supply. Further risks exist in the development of the oil price, the current political debate on new parameters for the use of renewable energies, in particular for biofuels, and in the maintenance of a fundamental external safeguard, which need to be taken into account when concluding new bilateral trade agreements. Operating risks, certification, insurance All business processes at Nordzucker are integrated into the management system, as well as the focus areas quality assurance, health and safety at work and environmental management. In order to comply with the high internal standards and all statutory requirements regular examinations, audits and certifications are carried out in accordance with DIN EN ISO 9001/DIN EN ISO 14001, EG Environmental Audit regulation 761/2001 (EMAS II) as well as the product safety standards DIN EN ISO 22000, for which all German sites were certified in 2007 for the first time, the International Food Standard (IFS) for the food retailing industry and standards GMP B2 and Q&S for the animal feed industry. Nordzucker also has received certification according to the usual standards for quality assurance, safety at work and environmental management for its international sites. The international insurance concept for Nordzucker and all its affiliates includes uniform insurance standards and premiums and takes individual national requirements into account. It primarily includes insurance for property, machinery and third party liability in order to cover all potential risks. Risks at former sites are also included and covered by appropriate insurance. In the course of redeveloping former sites risks can arise which require recognition in the financial statements. These mostly relate to environmental or other restrictions on the use of land which depress the planned sales price and previously unknown contamination for which provisions are required to cover the cost of disposal. Nordzucker reviews these risks on a regular basis. 46

51 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Risk report Supplementary report Financial risks Currency risk For many years Nordzucker has pursued a natural hedge approach to reducing currency risk, as both sugar and beet prices are set in Euros for Eastern European countries since they joined the EU. The aim is to reduce the balance of income and expenditure in a given currency and thereby minimise the effects of changes in exchange rates against the Euro. If necessary, additional beet payments by the Eastern European companies are also hedged by derivative spread hedges until these countries adopt the Euro. IT risks Nordzucker ensures the security of its IT systems and data according to the latest standards. Nordzucker systematically uses up-to-date versions of standard software and commonly available hardware in order to benefit from technological developments with as little disruption as possible and make sure that the complexity of the IT systems remains manageable. The great majority of affiliates in the sugar sector have already been included in this strategy. We have continued to dismantle existing data centres in the affiliates and centralise the IT systems in a fail-safe data centre at the Braunschweig site. The Group also hedges any other exchange rate risks with appropriate financial instruments. Interest rate risk To the extent that financial liabilities have floating interest rates, the risk exists both that interest rates will rise and that they will fall. As part of interest rate management these risks are measured, assessed and managed with the use of classical, non-speculative interest rate derivatives. All interest rate hedges serve solely to minimise the interest rate risks identified. Liquidity risk Nordzucker deploys various financial instruments to improve the availability and management of liquidity. These include a syndicated loan arranged in February 2006, for which the term of the main revolving credit tranche has been extended for one year by exercising an extension option in February 2008, as well as bilateral loans and drawdowns from overnight and deposit accounts for which lines of credit have been confirmed. Liquidity forecasts are drawn up regularly. Supplementary report Sugar production to cease in Hungary On March 10, 2008 the Management Board of Mátra Cukor Zrt. announced the closure of their last remaining Hungarian factory in Szerencs. For Mátra Cukor this represents the end of sugar production from beet in Hungary following the closure of the Szolnok factory decided in November Mátra Cukor will continue to supply the sugar market in Hungary, warehousing and packaging sugar at its sites in Szolnok and Hatvan. Household products under the SweetFamily brand will also continue to be manufactured in Hatvan. It became necessary to discontinue sugar production from beet in Hungary as it was no longer possible to ensure sufficient supplies of beet for the sugar factory in Szerencs. The beet prices demanded by farmers were well above what Mátra Cukor could afford given the market conditions for sugar set by the EU. The beet Nordzucker 2007/

52 Quota returns stabilise the sugar market in the EU. Passing the baton: Dr Martin Wienkenhöver reinforces the Management Board. prices offered by the company, additional price premiums from the EU under the sugar market regime and national government aid would have enabled competitive beet cultivation in the region. Mátra Cukor greatly regrets this development, which brings to an end a tradition of sugar production in Szerencs going back 119 years. A redundancy package is being prepared for the 111 employees affected by the factory closure. Some 60 staff will remain in Hatvan. New Management Board members Management Board member Günter Jakobiak announced his retirement from the company with effect from September 30, 2008 after ten successful years at the head of Nordzucker. He is leaving of his own volition when his contract expires to take up new private challenges and spend more time with his family. Günter Jakobiak has been a member of the Management Board of Nordzucker since 1998 with responsibility for production, purchasing, human resources and logistics. He has worked at Nordzucker and its predecessors for 29 years and has held varied responsibilities. Dr Martin Wienkenhöver has reinforced the Management Board with his presence since April 1, In due course he will take over the supply chain division, which includes the purchasing, production, quality management and logistics departments. Quota returns: second wave Having already returned 13.5 per cent of its quota by January 31, 2008, the Management Board of Nordzucker AG has decided to surrender a further six per cent of the German sugar quota to the EU restructuring fund. For the EU as a whole a total of 1.16 million tonnes of quotas was still missing after the first wave of quota returns. The European Commission therefore allowed additional returns to be made up to March 31, 2008 on the same terms as for the first wave which ended on January 31, Nordzucker took advantage of these terms. Overall Nordzucker will therefore return some 228,000 tonnes. In Hungary Nordzucker has ceased sugar production altogether and therefore returned the entire remaining quota of some 100,000 tonnes in the second wave. In Slovakia some 9,000 tonnes of quota were returned. In Poland Nordzucker did not participate in the second wave. Overall some 848,000 tonnes of sugar quota were returned from across the EU by March 31, This means that only an additional 300,000 tonnes need to be cut in order to reach the return of the six million tonnes required. The future development of the European sugar market will decide whether a linear cut will still be imposed for this amount in

53 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Supplementary report Strategic positioning Forecast report Strategic positioning Nordzucker in Europe The reform of the sugar market regime has fundamentally altered the commercial environment for producing sugar in Europe. Nordzucker is also affected by returning quotas, capacity adjustments and expenses for payments to the EU. As a result of taking cost-cutting and restructuring measures in good time Nordzucker has been able to achieve very good results in the first two years of the reformed sugar market regime. The Beet Goes On The changes in the sugar market also prompted a process of internal change at Nordzucker with the aim of maintaining and durably improving the company s competitiveness. This involved identifying the key variables of internal improvement and renewal and working closely to amend them. Points covered included joint adjustments to the corporate strategy, internationalisation of the organisational structure, the development of a vision and a mission and formulating clearly measurable targets and codes of conduct. Nordzucker has deliberately undertaken this process of change and improvement, with the aim of emerging revitalised and ready to enter a new era of sugar production in Europe. Sugar and energy Producing sugar from beet is part of Nordzucker s heritage. This and the spirit of partnership which unites us with beet farmers and farming form the basis for Nordzucker s strategy: sugar production from beet and new horizons in the market for renewable energy. Substantial, sustainable growth in both these fields will be decisive for Nordzucker s future success. Sugar Is Natural Energy Energy Is Our Life. Forecast report Over the last two years the sugar industry in the EU has been defined principally by the changes to the sugar market regime. The alterations to price and volume structures were the cause of considerable upheaval. It also meant that both financial years were affected by both positive and negative non-recurring items. These include one-off expenses for factory closures and capacity adjustments as well as payments to the EU restructuring fund. The aid received from the restructuring fund as compensation for returning quotas had a positive effect on earnings for the year 2007/2008, however. The next two years will also be marked by change and consolidation in the sugar market. The return of quotas and the reduction of the reference price will diminish Nordzucker s revenues. We are assuming a decline in sales of around five per cent for the current financial year followed by a further drop in 2009/2010. After 2010 the period of restructuring will have been completed. The restructuring levy is payable for the last time in 2008/ 2009 and no further returns of quota are planned. As the fixed minimum price for beet goes down at the same time as revenues, Nordzucker AG anticipates operating earnings for 2008/2009 to be only slightly lower than in 2007/2008. The earnings forecast for the foreign affiliates is less positive, as here the situation on agricultural markets will have a greater effect on earnings. On the other hand no negative effects are anticipated from write-downs in the current year, so that at Group level earnings should be roughly the same as last year. Price developments, especially in the sugar market, will determine earnings in the following year 2009/2010. From today s perspective we expect earnings performance to be stable. Despite the transformation of the European sugar market, which was accompanied by painful cutbacks, Nordzucker can look back on two very successful years. Considerable early endeavours to restructure, increase capacity utilisation and cut costs have made the past two financial years such a success and prepared the ground for the company s future development. Nordzucker will remain one of Europe s major sugar producers and reinforce its competitiveness. We will continue to focus on providing our customers with a secure supply of the highest quality sugar. Braunschweig, Germany, April 25, 2008 The Management Board Birlenberg Dr Einfeld Jakobiak Dr Wienkenhöver Nordzucker 2007/

54 50 Consolidated financial statements Management according to financial market indicators

55 Nordzucker 2007/

56 Consolidated income statement Nordzucker AG, Braunschweig, Germany, for the period from March 1, 2007 to February 29, 2008 Ref. 1/3/ /2/2008 in TEUR 1/3/ /2/2007 in TEUR 1. Revenues 1,300,128 1,233, Increase in finished goods and work in progress 74,452 36, Own work capitalised 1, Other operating income 7 161,457 60, Cost of materials and services 8 1,006, , Personnel expenses 9 123, , Depreciation, amortisation of intangible assets, property, plant and equipment and extraordinary depreciation ,153 54, Appreciation on intangible assets, property, plant and equipment and extraordinary depreciation 18 3,626 5, Other operating expenses , , Operating result (EBIT) , , Net interest 12 a) Interest income 6,829 7,689 b) Interest expenses 17,898 24,472-11,069-16, Net loss/income from investments 13 a) Net loss/income from associated companies at equity -1, b) Other net income from investments 2,850 3, , Other net financial expense/income , Net financial expense -10,206-11, Income tax expense 15 19,658 48, Consolidated net income 80, , Minority interests 9,935 9, Consolidated net income attributable to shareholders of the parent company 70, ,465 52

57 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Consolidated income statement Consolidated cash flow statement Consolidated cash flow statement 1/3/ /2/2008 in EUR m 1/3/ /2/2007 in EUR m Operating result (EBIT) Net depreciation on long-term assets Net amortisation on financial assets Changes in long-term provisions Other non-cash expenses Changes in finished goods and work in progress Changes in short-term provisions Proceeds on dispoal of long-term assets Changes in inventories, trade receivables and other assets not attributable to investing or financing activities Changes in accounts payable and other liabilities not attributable to investing or financing activities Interest received in the financial year Interest paid in the financial year Taxes reimbursed in the financial year +2.3 Taxes paid in the financial year Cash flow for/from operating activities Proceeds on disposal of long-term assets Payments for investments in long-term assets Proceeds on disposal of intangible assets Payments for investments in intangible assets Proceeds on disposal of financial assets Payments for investments in financial assets -1.2 Payments for the acquisition of consolidated companies and other business units Cash flow for investing activities Payments to shareholders (dividends) Proceeds from borrowing Loan repayments Cash flow from/for financing activities Changes in cash and cash equivalents Cash and cash equivalents at the beginning of the period Effect of foreign exchange rate changes Cash and cash equivalents at the end of the period For further details see Notes 35 et. seq. Nordzucker 2007/

58 Consolidated balance sheet Assets Ref. 29/2/2008 in TEUR 28/2/2007 in TEUR Long-term assets Fixed assets Intangible assets 16 73, ,929 Property, plant and equipment , ,036 Investment property 19 7,093 6,379 Financial assets 20 Shares in associated companies at equity , Other financial assets ,037 20,369 Accounts receivable and other assets 24,898 21, , ,484 Financial assets Other assets , ,071 1,102 Deferred taxes 15 37,995 38, , ,645 Short-term assets Inventories 21 Raw materials, consumables and supplies 30,347 26,141 Work in progress 31, Finished goods and merchandise 570, , , ,425 Accounts receivable and other assets Trade receivables from external companies 22 70, ,629 Receivables from related parties and companies ,182 5,054 Receivables from income tax 15 4,077 7,495 Financial assets 24 10,534 22,914 Other short-term assets 25 26,761 34, , ,827 Assets held for sale 26 1, Cash and cash equivalents 28,846 86, , ,365 1,834,714 1,651,010 54

59 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Consolidated balance sheet Shareholders equity and liabilities Ref. 29/2/2008 in TEUR 28/2/2007 in TEUR Shareholders' equity 27 Subscribed capital , ,651 Capital reserves , ,035 Retained earnings , ,921 Accumulated other comprehensive income ,066 23,042 Equity attributable to shareholders of the parent company 666, ,649 Minority interests ,244 68, , ,013 Long-term provisions and liabilities Provisions for pensions and similar obligations ,666 99,235 Other provisions 29 30,904 13,218 Financial liabilities , ,799 Other financial liabilities ,429 Other liabilities 34 28,851 24,927 Deferred taxes 15 76,395 91, , ,742 Short-term provisions and liabilities Provisions for pensions and similar obligations 28 4,878 4,958 Other provisions 29 31,886 38,115 Financial liabilities ,856 90,529 Income tax liabilities 15 19,389 15,138 Trade payables , ,109 Receivables from related parties 32 5,771 3,064 Other financial liabilities 33 32, ,753 Other liabilities , , , ,255 1,834,714 1,651,010 Nordzucker 2007/

60 Consolidated statement of changes in shareholders equity for the consolidated financial statements of Nordzucker AG, Braunschweig, Germany Equity attributable to shareholders Subscribed Capital Retained Accumulated of the parent Minority capital reserves earnings other equity company interests Total equity in TEUR in TEUR in TEUR in TEUR in TEUR in TEUR in TEUR As of 28/02/ , , ,040 14, ,234 4, ,719 Currency effects ,817 7, ,817 Fair value adjustment Total earnings recognised directly in equity ,534 8, ,534 Net income , ,465 9, ,943 Consolidated net income ,465 8, ,999 9, ,477 Dividend payment , , ,558 Others ,401 54,375 As of 28/02/ , , ,921 23, ,649 68, ,013 Currency effects ,781 5, ,781 Fair value adjustment Total earnings recognised directly in equity ,025 5, ,025 Net income , ,067 9,935 80,002 Consolidated net income ,067 5,025 75,092 9,935 85,027 Dividend payment , ,185-13,411-36,596 Others As of 29/02/ , , ,446 28, ,198 65, ,442 For further details see Note 27 to the consolidated financial statements. 56

61 Notes to the consolidated financial statements Quality shows in the details Nordzucker 2007/

62 Notes to the consolidated financial statements for the financial year 2007/2008 for Nordzucker AG, Braunschweig, Germany General remarks 1. Accounting principles The consolidated financial statements as of February 29, 2008 for Nordzucker AG have been prepared in accordance with Sec. 315a HGB (German Commercial Code) in accordance with the International Financial Reporting Standards (IFRS) adopted and published by the International Financial Standards Board (IASB) as applicable in the European Union and with supplementary provisions of German commercial law. The financial statements comply fully with IFRS and give a true and fair view of the financial and earnings position of Nordzucker AG and its consolidated subsidiaries, associated companies and joint ventures (hereinafter known as Nordzucker Group or Group ). with and published by the operator of the electronic German Federal Gazette (Elekronischer Bundesanzeiger). 2. Consolidation 2.1. Principles of consolidation The consolidated financial statements of the Nordzucker Group include the domestic and foreign subsidiaries in which Nordzucker AG has direct or indirect control of financial and operating policy. In accordance with IFRS 1.15 all acquisitions made by the Group prior to March 1, 2004 have been presented using the methods applied in the HGB consolidated financial statements. There were therefore no differences to the derived goodwill offset against reserves in the HGB financial statements. Individual line items of the income statement and the balance sheet have been aggregated to improve readability. These items are listed in the notes. The income statement has been classified according to the total cost method. The consolidated financial statements have been prepared in Euros. Unless otherwise stated all amounts are given in thousands of Euros (TEUR). The consolidated financial statements were approved by the Management Board of Nordzucker AG for presentation to the Supervisory Board on April 30, The consolidated financial statements and the Group management report for 2006/ 2007 have been filed electronically 2.2. Business combinations and goodwill Business combinations are presented using the purchase method. This involves the recognition of the identifiable assets (included intangible assets not previously recognised) and liabilities (including contingent liabilities but not including future restructuring) of the business acquired at fair value. Goodwill arising from a business combination is initially recognised at cost, which is the excess of the cost of the business combination over the acquirer s interest in the net fair value of the identifiable assets acquired and the liabilities and contingent liabilities assumed. Following initial recognition goodwill is measured at cost less any accumulated write-downs. 58

63 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes For the purposes of the impairment test the goodwill acquired in a business combination is allocated to the cash-generating units or groups of cash-generating units which benefit from the synergies of the business combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units or groups of units. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. If goodwill has been allocated to a cashgenerating unit (group of cash-generating units) and the entity disposes of an operation within that unit, the goodwill associated with the operation disposed of shall be included in the carrying amount of the operation when determining the gain or loss on disposal. The value of the goodwill disposed of is measured on the basis of the relative values of the operation disposed of and the portion of the cashgenerating unit retained. If a cash-generating unit is disposed of, the difference between the sales price and the net assets plus accumulated foreign exchange differences and goodwill without impairment is recognised in profit and loss. Associated companies and joint ventures are accounted for in the consolidated financial statements under the equity method ( at equity ). Associated companies are defined as companies in which the Nordzucker Group can exercise a significant influence over financial and operating policy. In applying the equity method the IFRS financial statements of these companies are used. Losses from associated companies which exceed the carrying amount or other long-term receivables from financing these companies are not recognised unless there is an obligation to provide further capital. The financial statements of Nordzucker AG and the consolidated subsidiaries, associated companies and joint ventures are prepared on the basis of uniform accounting policies Group of consolidated companies The consolidated companies in the Nordzucker Group are as follows: Group of consolidated companies 29/2/ /2/2007 Fully consolidated companies Domestic 9 9 Foreign Proportionately consolidated companies Domestic 0 1 Companies accounted for at equity Domestic 2 2 Foreign 1 0 Expenses and income, and receivables and liabilities between consolidated companies are eliminated. Interim results are reversed if significant. The list of investments is filed electronically with the operator of the electronic German Federal Gazette (Elekronischer Bundesanzeiger). The reporting date December 31 was used for the consolidation of all relevant companies except Nordzucker AG (reporting date: February 29, 2008). The use of this reporting date does not have a significant effect on the financial and earnings position of the Group as a result of seasonal conditions in the sugar industry. There were no significant transactions between the reporting date for the subsidiaries and the reporting date for the Group. Nordzucker 2007/

64 2.4. Conversion of financial statements in foreign currencies Assets and liabilities of subsidiaries whose functional currency is not the Euro are converted at the exchange rate applicable on the balance sheet date. Items in the income statement are converted at the weighted average rate for the relevant year. Equity components of subsidiaries are converted at the historical rate for the date first recognised. Exchange differences arising from the conversion are recognised as equalisation amounts within the accumulated other comprehensive income or in minority interests. The rates for the conversion of key financial statements in foreign currencies into Euros have developed as follows: Foreign currency Average rate Spot rate for EUR /12/ /12/2006 Polish Zloty Slovakian Crown Hungarian Forint Serbian Dinar Explanation of accounting methods 3.1. Recognition of income and expense Revenues are recognised when the goods or services are delivered if the amount of revenue can be estimated reliably and the flow of economic benefit is probable. Revenues are reduced by sales discounts. Operating expenses are recognised when the service is used or as of the date they arise. Dividends are recognised when distributed. The period of distribution is generally equivalent to the period in which entitlement is legally vested Intangible assets Self-created intangible assets are recognised at the costs arising in the development phase after technical and economic feasibility has been determined and up to completion. Capitalised production costs include the costs directly attributable to the development phase. Interest is recognised as an expense or as income in the period in which it arises. The Group does not capitalise interest expense arising in connection with the purchase and production of certain assets. Separately acquired intangible assets are recognised at cost. 60

65 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Self-created and separately acquired intangible assets which have a finite useful life are amortised from the time the asset is available for use on a straight-line basis over the expected useful life of the asset as follows: Intangible assets Useful life in years Production quotas acquired 9 ERP licences 20 Process control systems and updateable Microsoft licence packages 15 Other software 3-15 Goodwill is not subject to scheduled amortisation (see 2.2 above). Gains or losses on the disposal of intangible long-term assets are disclosed under other operating income or expenses Property, plant and equipment Items of property, plant and equipment are recognised at cost and depreciated on a straight-line basis over their expected useful lives. The costs of self-created items of property, plant and equipment include all direct costs as well as all indirect costs incurred in connection with the production process. Financing costs are not capitalised. Gains or losses on the disposal of long-term assets are recognised in other operating income or expenses. Rented or leased assets which are economically owned by Group companies (finance leases) are capitalised at lower of the present value of the rental or lease payments and fair value of the leased asset and depreciated on a straight-line basis. The present value of payment obligations for future rental and lease payments is recognised as a liability. Scheduled depreciation takes place on a uniform basis for the Group over the following useful lives: Property, plant and equipment Useful life in years Buildings Technical plant and machinery 4-60 Railway track 70 Vehicles 4-15 Trailers and rolling stock 25 Other operating and office equipment 3-25 Depreciation generally begins when the asset is made ready for operation. Technical plant and machinery only used during the campaign are depreciated for the full year. For assets under finance leases where the transfer of title to Group companies at the end of the lease term is sufficiently certain, scheduled depreciation takes place over the useful life of the assets. Investment subsidies and public grants for the purchase or production of items of property, plant and equipment are accounted for by recognising an item of deferred income under other liabilities. The deferred income item is then reversed through profit and loss over the useful life of the subsidised asset Investment properties Properties classified by Nordzucker Group as available for let to third parties are carried at depreciated cost in accordance with the classification alternative defined in IAS 40. These properties are depreciated on a straight-line basis over a useful life of years Extraordinary depreciation and amortisation of intangible assets and property, plant and equipment Group companies test long-term assets for extraordinary depreciation or amortisation if events or changes in circumstances indicate that the asset may be impaired ( impairment test ). Extraordinary depreciation is recognised if the present value of the expected future cash flows from the assets is lower than the carrying amount of the respective asset. Extraordinary depreciation is recognised for intangible assets and items of property, plant and equipment if due to particular events the carrying amount of the asset is no longer covered by the anticipated proceeds of disposal or the discounted net cash flows from its continued use. If the recoverable amount cannot be measured for individual assets because the cash flows depend on other assets, the cash flow is determined for the next highest group of assets (reporting unit, cash-generating unit) for which such a cash flow can be determined. The cash flows of the reporting units are discounted at a rate which reflects current market assessments of the time value of money and the specific risks of the asset. Extraordinary depreciation is recognised when the present value of the cash flows is less than the carrying amount of the long-term and net short-term assets of the reporting unit. Nordzucker 2007/

66 An assessment is made as of each reporting date whether there is any indication that extraordinary depreciation recognised in prior periods may no longer exist or may have decreased. Extraordinary depreciation is reversed if the value in use has increased in subsequent periods. The increased carrying amount of an asset attributable to a reversal of extraordinary depreciation shall not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no extraordinary depreciation been recognised for the asset in prior years Investment subsidies and grants Claims for investment subsidies and grants are recognised from the time the Nordzucker Group is sufficiently certain that they will be granted and that the conditions for receiving them will be met. Grants and subsidies for purchasing assets are carried as liabilities and reversed through profit and loss over the useful life of the subsidised assets. amortised over the duration for all financial liabilities which are not subsequently measured at fair value through profit and loss. The fair values carried in the balance sheet are normally equivalent to the market prices of the financial instruments. If these are not directly available from an active market, measurement is made using the discounted cash flow method (DCF method) i.e. based on expected future cash flows using the reference interest rates applicable at the balance sheet date. IAS 39 stipulates that financial instruments are to be classified as loans and receivables (L&R), available for sale (AFS), held to maturity (HTM), held for trading (HFT), fair value option (FVO) or financial liabilities measured at amortised cost (FLAC). Nordzucker Group has not used the option of designating financial assets or financial liabilities upon initial recognition as at fair value through profit and loss (FVO) Emission rights The Nordzucker Group does not recognise emissions rights received free of charge. Nordzucker Group recognises equivalent liabilities at cost if the emissions rights held by the Group are not sufficient Financial instruments Nordzucker Group accounts for financial instruments in accordance with IAS 39. All purchases or disposals of financial assets within the Group are recognised on acquisition, i.e. as of the settlement date, irrespective of their classification. Financial assets and financial liabilities are initially recognised at fair value. The transaction costs directly attributable to the acquisition are also recognised and The Nordzucker Group also does not hold any financial assets or financial liabilities classified as held for trading. Available for sale financial instruments are initially recognised at fair value. The result of subsequent measurement at fair value is recognised without effect on profit and loss in other comprehensive income, having accounted for the effects of tax. When the financial asset is sold the accumulated results of measurement changes carried in the balance sheet are reversed and the realised gain or loss is recognised in profit and loss. If the asset is impaired the revaluation surplus is corrected for the amount of the impairment and the resulting amount recognised in profit and loss. 62

67 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes If the fair value of financial instruments cannot be measured or derived using appropriate valuation methods they are carried at amortised cost. For cash and other current original financial instruments fair value is equivalent to the carrying amount on each balance date. Assets held to maturity are carried at amortised cost using the effective interest method. Extraordinary depreciation is recognised on these assets if the recoverable amount using the effective interest originally determined is below the carrying amount. In the financial year no financial assets were reclassified from being available for sale to being held to maturity. Availablefor-sale financial instruments carried at fair value were also not reclassified as being held at amortised cost. Reclassifications in the opposite direction were also not applicable for Nordzucker Group. Nordzucker Group also made no disposals of financial assets without derecognising them, either in the reporting period or in the previous year. Furthermore there were no interruptions of payment or breaches of contract relating to loan liabilities of the Nordzucker Group in the reporting periods mentioned. Nordzucker Group carries out regular impairment tests on financial assets held in the balance sheet in the categories loans and receivables, available for sale and held to maturity. These are based on past experience and individual risk assessments. The risk assessments include criteria such as severe financial difficulties at the issuer or debtor, breach of contract, concessions made to debtors for economic or legal reasons in connection with the debtor s financial difficulties and an increased probability of the debtor s insolvency. Other criteria are the disappearance of an active market for the asset in question or observable data which indicates a measurable reduction in expected future cash flows from a group of financial assets since their initial recognition. Further information on financial instruments is given in Note Financial investments and securities Other financial investments and securities are categorised in line with IAS 39 according to type and purpose and classified either as available for sale or as held to maturity Long-term assets held for sale Long-term assets are classified as held for sale if the disposal of the asset within the next 12 months is highly probable. This classification is only made when the asset is available for sale in its present condition and the marketing of the asset has already begun. Long-term assets held for sale are carried at the lower of amortised cost and fair value less costs to sell. No further scheduled depreciation is made for assets from the time they are classified as held for sale Inventories Inventories are recognised at cost. Costs are determined using weighted averages. Costs include all direct costs attributable to producing the asset and indirect costs attributable to production. Measurement of inventories at the reporting date is made at the lower of cost and net realisable value. Net realisable value is the estimated selling price less the estimated costs prior to sale. The net realisable value of unfinished goods and services is inferred from the net realisable value of finished goods and services less the outstanding costs of completion. Semi-finished goods from production processes are measured using their respective full cost approach. Indirect costs are allocated according to production volume and in-house production depth. If the measurement for finished products and goods is higher than fair value as of the reporting date, the inventories are written down to net realisable value. Sugar stocks from internal production disclosed under finished products are recognised at cost, unless they are recognised at lower net realisable value in view of sales opportunities. Costs include production costs, indirect costs attributable to the production department and straightline depreciation for wear and tear. Cost for quota sugar also includes the restructuring levy of EUR (126.40) per tonne of actual production volume plus the factory portion of the production levy of EUR 6.00 per tonne. Borrowing costs are not included in the costs of production. A write-down in inventories is reversed if the reasons for recognising a write-down no longer exist Receivables and other assets Trade receivables and other assets are initially recognised at fair value plus transaction costs. Subsequent recognition is at amortised cost. For current financial assets in the loans and receivables category fair value is approximately equal to the carrying amount. Nordzucker 2007/

68 Default risks are recognised by appropriate write-downs based on past experience and individual assessments of risk Cash and cash equivalents Cash and cash equivalents include bank balances and cash in hand. Carrying amounts are equal to fair value Pension provisions Provisions for pension obligations are determined in line with IAS 19 using the projected unit credit method and taking future developments in salaries and pensions into account. The measurement of the retirement benefit obligations is made on the basis of actuarial opinions and includes the assets available to cover these obligations (plan assets). The present value of defined benefit obligations is determined by discounting the estimated future cash outflows. The discount rate is based on the rate paid by high-quality corporate bonds which match the underlying retirement benefit obligations in terms of currency and maturity Other provisions Other provisions include all identifiable legal and constructive obligations of the Group towards third parties if their settlement is probable and the amount can be reliably estimated. Provisions are recognised in line with IAS 37 as the best estimate of the amount required to settle the obligation. Long-term provisions are recognised as the present value of the amount required to settle the obligation, discounted using appropriate market interest rates. Provisions for restructuring are only recognised if the planned measures have been developed in sufficient detail as of the reporting date and if the measures have been announced Liabilities Liabilities are recognised initially at fair value including transaction costs and any premiums and discounts. Subsequent recognition is at amortised cost using the effective interest method. If the actuarial gains and losses resulting from changes in the actuarial parameters exceed 10% of the greater of the retirement benefit obligations and plan assets at the beginning of the financial year, the amount exceeding the 10% threshold is recognised through profit and loss for the remaining term of service of the entitled staff (corridor method). Service cost and realised actuarial gains and losses are recognised in staff expenses. The interest component of pension expenses and the expected income from plan assets is disclosed as part of net financial income/loss Deferred taxes Deferred taxes are recognised for future tax assets and liabilities resulting from temporary differences between the value of assets and liabilities for tax purposes and their carrying amount in the IFRS financial statements, and for tax loss carryforwards. Deferred taxes are measured on the basis of the fiscal legislation enacted at the end of each financial year for the financial years in which the differences are expected to reverse or in which it is likely that tax loss carry-forwards will be used. Deferred tax assets for tax loss carryforwards are only recognised if it is sufficiently likely that they will be realised in the near future. 64

69 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Derivative financial instruments and hedge accounting Due to the nature of its business Nordzucker Group is exposed to interest rate and exchange rate risks. Derivative financial instruments are used as a means of managing these risks. As a rule derivative financial instruments are recognised at fair value. The fair value of derivatives can be both positive and negative. If a market value is not available fair value is determined using net present value and option pricing models. The input parameters for these models are the relevant market prices and interest rates observed on the balance sheet date as derived from recognised sources. Changes in fair value of derivative financial instruments are recognised directly in equity if they are part of effective hedging relationships (hedge accounting). The principles of hedge accounting are intended to capture the offsetting effects on profit or loss of changes in the fair values of the hedging instrument and the hedged item. In addition to documentation on the hedging relationship IAS 39 requires that the hedge be shown to be highly effective for hedge accounting to be applied. The effectiveness of the hedge is demonstrated by its ability to achieve offsetting changes to changes in the hedged item s fair value in the case of fair value hedges or of cash flows attributable to the hedged risk in the case of cash flow hedges. Changes in fair value of derivatives used to hedge future cash flows (cash flow hedges), which are considered effective, are recognised directly in accumulated other comprehensive income after accounting for tax affects. The amounts recognised in accumulated other comprehensive income are derecognised when the hedged item is recognised in the balance sheet or in profit and loss. Derivatives, which despite their effect as economic hedges do not fulfil the criteria of IAS 39 for recognition as hedging instruments, are classified as held for trading and carried at fair value through profit and loss. When closing hedge transactions Nordzucker Group classifies interest rate derivatives solely as cash flow hedges for hedge accounting purposes Foreign currency transactions Purchases and sales in foreign currencies are converted at the exchange rate applicable at the time of the transaction. Assets and liabilities in foreign currencies are translated into the functional currency at the exchange rate on the reporting date. Foreign currency gains and losses resulting from the conversion are recognised in profit and loss Use of estimates Preparing the financial statements in line with IFRS requires the use of estimates and assumptions which affect the carrying amounts of assets and liabilities, the disclosure of contingent liabilities as of the reporting date and the recognition of income and expenses. Key estimates and assumptions have been made in defining uniform periods of depreciation and amortisation for the Group, the amount of write-downs on receivables, the actuarial parameters for measuring pension provisions and the probability that deferred tax assets will be used. Other significant estimates have been made in performing the impairment test in accordance with IAS 36 concerning cash flows in the forecast period in view of the reform of the sugar market and in choosing an adequate capitalisation rate. The actual amounts may vary from the amounts derived from the estimates and assumptions. 4. Recently published IASB accounting regulations IFRS 7 Financial Instruments: Disclosures, which redefines disclosure rules for financial instruments and replaces IAS 32 was applied for the first time in the reporting period. As this standard only required extensive additional disclosures in the Notes, it had no effect on the financial and earnings position of the Group. Also applied for the first time in the reporting period was the amended version of IAS 1. The amendments mainly relate to disclosures in the Notes which enable readers of the financial statements to analyse the aims, methods and processes of capital management, and therefore had no effect on the financial and earnings position of the Group. The standards and interpretations published but not yet binding at the time the financial statements are prepared are not applied in advance, but will be implemented when they become binding. IFRS 2 Share-based payment The revised standard was published in January 2008 and is binding for financial years starting on or after January 1,2009. The standard has not yet been adopted as European law. As well as defining the terms on which commitments/plans are exercised, accounting has also been clarified for the revocation or cancellation of commitments and plans. The application of the revised IFRS 2 does not affect the Nordzucker Group. Nordzucker 2007/

70 IFRS 3 Business combinations, IAS 27 (2008) Consolidated financial statements and accounting for investments in subsidiaries The second phase of the project to revise business combinations was published in January 2008 and affects both standards. It is applicable for the first time to financial years beginning on or after July 1, The adjustments to the standards have not yet been adopted in the EU. Earlier application of the standards is only possible for both standards together. The revised standards clarify the accounting and presentation of business combinations in the financial statements. In line with the interim rules the Group will apply the revised standards to any business combinations. IFRS 8 Operating Segments This standard contains new rules on a company s reporting for its reportable segments. It requires segment reporting to be prepared under the management approach. The standard is applicable to financial years beginning on or after January 1, The initial application of the standard is not expected to have any significant effects on Nordzucker s consolidated financial statements. IAS 1 (2007) Presentation of financial statements The revised standard was published in December 2007 and is applicable for financial years starting on or after January 1, The standard has not yet been transposed into European law by the EU. The changes are intended to enable readers of financial statements better to analyse the information in the financial statements. IAS 23 (2007) Borrowing costs The revised standard was published in Mach 2007 and is applicable for the first time in financial years beginning on or after January 1, IAS 23 has not yet been adopted into European law by the EU. The revised standard requires the capitalisation of borrowing costs attributable to qualifying assets. A qualifying asset is one which needs a considerable period of time to bring it to its intended usable or saleable condition. This will not effect Nordzucker s financial statements in the coming financial year 2008/2009. There are also no changes to earlier borrowing costs which have been recognised directly in profit and loss. IAS 32 (2008) Financial instruments: Presentation, IAS 1 Presentation of financial statements The revised standards were published in February 2008 and are applicable for the first time for financial years beginning on or after January 1, The amendments have not yet been adopted as EU law. They clarify the classification of certain financial instruments defined under IAS 32 as financial liabilities but which include a residual claim on the net assets of the company. This will not affect Nordzucker Group. IFRIC 12 Service concession agreements The interpretation IFRIC 12 was published in November 2006 and is applicable for financial years beginning on or after January 1, The interpretation has not yet been adopted into European law. It governs the accounting treatment of rights and duties agreed as part of service concessions. The companies included in the consolidated financial statements are not operators of service concessions within the meaning of IFRIC 12, so the interpretation will not affect the Group. 66

71 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes IFRIC 13 Customer loyalty programmes IFRIC 13 was published in June 2007 and is applicable for financial years beginning on or after July 1, The interpretation has not yet been adopted by the EU for European law. Under this interpretation benefits given to customers (award credits), are to be recognised independently of the transaction with which they were awarded. A portion of the fair value of the consideration received is therefore allocated to the award credits and held as deferred income. The income is recognised as revenue in the period in which the award credits are exercised or expire. As the Group does not currently operate any customer loyalty programmes within the meaning of IFRIC 13, this interpretation will not affect the consolidated financial statements. IFRIC 14/IAS 19 The limit on a definedbenefit asset, minimum funding requirements and their interaction IFRIC 14 was published in July 2007 and is applicable for financial years beginning on or after January 1, IFRIC 14 has not yet been adopted into European law. It provides guidance on determining the limit of a pension fund surplus which can be recognised under IAS 19 as a definedbenefit asset. Business combinations 5. Acquisitions in the financial year 2006/2007 Acquisition of Sunoko d.o.o., Novi Sad/ Serbia With effect from June 22, 2006 the Group acquired 62.69% of the voting shares of Sunoko d.o.o. (Sunoko) based in Novi Sad/Serbia via its 81.31% subsidiary NORDAGRI N.V., Amsterdam/ Netherlands. The company holds majority stakes (84.85%-96.35%) in four sugar factories which produce sugar on commission for Sunoko and solely from its sugar beet. Sunoko sells this sugar in Serbia (market share of around 50%) and in the EU under the preference rule of the EU sugar regime. The acquisition cost of the original goodwill amounting to TEUR 46,730 is derived from Sunoko s market share on its local market and the company s access to the EU market based on the EU preference rule for Serbia. The purchase price for the acquisition has since been adjusted from TEUR 92,955 to TEUR 90,771, but is not yet definitive. As a result of the adjustment The fair value of the identifiable assets and liabilities of the Sunoko Group at the acquisition date and the equivalent carrying amounts immediately before the acquisition date are as follows: to the purchase price goodwill declined accordingly by TEUR 2,304 to TEUR 44,426. As of the Group reporting date TEUR 63,271 of the total purchase price had already been paid. Sunoko Group Fair value Carrying in TEUR as of the acquisition date amount Intangible assets Property, plant and equipment 90,288 41,136 Financial assets Deferred tax assets 1,083 1,099 Inventories 21,229 20,521 Cash and cash equivalents 1,678 1,678 Trade receivables 15,936 15,936 Other assets 18,614 18, ,968 99,421 Deferred tax liabilities -6, Other provisions Bank debt -26,640-26,868 Finance leases -1,167 0 Trade liabilities -11,785-11,785 Other liabilities -8,597-9,775-54,481-48,541 Net assets 94,487 50,880 Group share of net assets 46,225 Goodwill from acquisition 44,546 Total acquisition costs 90,771 Nordzucker 2007/

72 Notes to the consolidated income statement 6. Revenues Revenues are made up as follows: Revenues 1/3/2007 1/3/2006 in TEUR -29/2/ /2/2007 Sugar revenues from own production 973, ,405 Other 326, ,524 1,300,128 1,234,929 Regions Germany 744, ,048 CEE countries 198, ,028 Other EU 177, ,260 Other 179,806 72,593 Revenues 1,300,128 1,234, Other operating income Other operating income is made up as follows: Income from the restructuring fund includes compensation under EU directive VO No. 320/2006 in connection with the closure of the production site in Güstrow and the related return of production quotas. The compensation payment is to be made by February 2010 at the latest and is subject to the demolition of production facilities in line with the restructuring plans. The indemnity from the restructuring fund was recognised in full in profit and loss in accordance with IAS 20. All expenses anticipated in connection with the closure of the production site in Güstrow have been recognised in these consolidated financial statements. Other operating income 1/3/2007 1/3/2006 in TEUR -29/2/ /2/2007 Proceeds from disposal of long-term assets 2,045 2,817 Proceeds from disposal of short-term assets Reversals of write-downs (or write-backs) on receivables 147 1,189 Income from the reversal of provisions 6,099 33,080 Insurance and other compensation for damages 2,473 1,109 Income from the reversal of investment subsidies, grants and other receivables 5, Income from the restructuring fund 116,574 0 Miscellaneous operating income 27,911 21,617 Other operating income 161,457 60,839 68

73 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes 8. Cost of materials and services The cost of materials and services is made up as follows: Expenses for purchased services include the defined restructuring and production levies of TEUR 253,769 (201,071). Cost of materials and services 1/3/2007 1/3/2006 in TEUR -29/2/ /2/2007 Cost of raw materials, consumables and supplies and of purchased merchandise 744, ,739 Cost of purchased services 262, ,024 Cost of materials and services 1,006, , Personnel expenses Personnel expenses are made up as follows: Expenses for defined benefit and defined contribution plans relate to Group expenses for defined benefit and defined contribution pension plans and similar obligations. The interest portion of defined benefits obligations included in the retirement benefit expenses is recognised in net financial income/loss. In 2007/2008 and 2006/2007 the average number of Group employees was as follows: Personnel expenses 1/3/2007 1/3/2007 1/3/2006 in TEUR -29/2/ /2/2007 Wages and salaries 104,577 93,987 Social security contributions and other social expenses 11,901 14,130 Expenses for defined benefit plans 2,204 2,867 Expenses for defined contribution plans 5,285 5,469 Personnel expenses 123, ,453 Average number of employees 1/3/2007 1/3/2007 1/3/2006 in TEUR -29/2/ /2/2007 Manual workers 1,860 2,233 Salaried staff 905 1,237 Trainees Average number of employees 2,861 3, Depreciation, amortisation and extraordinary depreciation Depreciation, amortisation and extraordinary depreciation are made up as follows: Extraordinary depreciation on property, plant and equipment and intangible assets with a finite useful life is recognised in line with IAS 36 if the recoverable amount for an asset is lower than the carrying amount, whereby the recoverable amount is defined as the higher of net realisable value and value in use. Depreciation, amortisation and extraordinary depreciation 1/3/2007 1/3/2007 1/3/2006 in TEUR -29/2/ /2/2007 Depreciation and amortisation of intangible assets and property, plant and equipment 47,730 49,503 Extraordinary depreciation 101,423 5,303 Depreciation, amortisation and 149,153 54,806 extraordinary depreciation Nordzucker 2007/

74 The extraordinary depreciation in the reporting year principally results from the factory closure in Güstrow and the return of production quotas. Property, plant and equipment belonging to the production site in Slovakia was written down by TEUR 24,900 as a result of an impairment test. The goodwill attributed to Sunoko d.o.o. was also written down by TEUR 24,000 in the reporting year. In the previous year extraordinary depreciation of TEUR 4,338 was recognised following an impairment test at Anton Hübner GmbH & Co. KG. Amortisation and extraordinary depreciation for financial assets are part of net financial income/loss. 11. Other operating expenses Other operating expenses are made up as follows: The increase in other operating expenses is primarily composed of expenses closely related to the restructuring (compensation for return of delivery rights, removal expenses, guarantee fees). Other operating expenses /3/2007 1/3/2007 1/3/2006 in TEUR -29/2/ /2/2007 Cost of sales 40,017 50,269 Research and development expenses Expenses for leasing, rent, land leases and other hire costs 5,493 5,416 Adminstrative expenses 35,429 35,264 Other taxes 5,007 4,888 Miscellaneous expenses 65,474 21,623 Other operating expenses 152, , Net interest Net interest is made up as follows: Net interest includes interest income and interest expense for financial instruments not carried at fair value through profit and loss. Further details can be found in Note 37. Net interest 3/2007 1/3/2007 1/3/2006 in TEUR -29/2/ /2/2007 Interest income Interest income on bank balances 4,361 3,777 Income from securities and loans Other interest and similar income 2,405 3,539 6,830 7,689 Interest expense Interest expense on bank balances 11,909 8,577 Interest expense on pension provisions (net) 4,446 4,103 Other interest and similar expenses 1,544 11,792 17,899 24,472 Net interest -11,069-16, Net income/loss from investments Net income/loss from investments is made up as follows: Further details on earnings contributions from financial instruments can be found in Note 37. Net income/loss from investments /2007 1/3/2007 1/3/2006 in TEUR -29/2/ /2/2007 Net income/loss from associates -1, Net income/loss from other investments 2,850 3,012 Net income/loss from investments 900 3,978 70

75 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes 14. Other financial net income/loss Other net financial income/loss amounts to TEUR -37 (1,070). Other net financial income/loss consists primarily of expenses (previous year: proceeds) from the disposal of other financial instruments. 15. Income taxes Income taxes includes taxes on income paid or owed in the individual countries and deferred taxes. Income taxes consist of trade tax, corporation tax, solidarity surcharge and the equivalent foreign income taxes. Income tax expense /3/2007 1/3/2006 in TEUR -29/2/ /2/2007 Current taxes Current domestic taxes 27,622 35,150 Current foreign taxes 6,151 9,742 33,773 44,892 Deferred taxes Deferred domestic taxes -12,189 3,398 Deferred foreign taxes -1, ,115 3,424 Income taxes 19,658 48,316 Income tax expenses are made up by origin as follows: Current domestic taxes include tax credits of TEUR 870 (3,284) from other periods. The income tax expense that would have been expected if the tax rate applicable to the Group parent Nordzucker AG of 29.00% (37.93%) had been applied to the IFRS consolidated net income before tax and minority interests can be reconciled with the income taxes according to the income statement as follows: Income tax expense /3/2007 1/3/2006 in TEUR -29/2/ /2/2007 IFRS net profit before income tax 99, ,259 Group tax rate in % Expected tax expense 28,902 61,924 Differences due to different foreign and domestic tax rates -4,026-14,799 Change in Group tax rate -11,126 0 Non-capitalised deferred tax assets on tax loss carry-forwards 87 0 Current taxes for prior years -1,304-1,839 Tax loss carry-forwards used ,172 Tax free income -5,239-1,094 Permanent differences from subsidiaries 5,854 0 Income from offsetting corporation tax credits 0-1,445 Non-deductible operating expenses for tax purposes including extraordinary depreciation on investments 5,612 6,711 Non-offsettable income tax Additions/deductions for trade tax Other effects Tax expense 19,658 48,316 Up to the fiscal year 2007 limited liability companies based in Germany paid corporation tax at 25% and a solidarity surcharge of 5.5% of the corporation tax payable. The 2008 reform of company taxation cut corporation tax to 15%. This reduced rate is applicable for the first time in the fiscal year For limited liability companies whose financial year is not the calendar year the new tax rate applies for the first time in the financial year ending in As its financial year ends on February 29, 2008 Nordzucker AG already benefits from the lower tax rate in this reporting period. Nordzucker 2007/

76 Companies based in Germany are also liable for trade tax at a rate determined by multipliers set by the local council. For limited liability companies the trade tax reduces the amount liable for corporation tax up to the fiscal year From the fiscal year 2004 onwards only limited use can be made of tax loss carryforwards for corporation and trade tax. This means that a taxable profit of up to EUR 1 million can be reduced fully and higher amounts can only be reduced by up to 60% of available tax loss carryforwards. The 2008 reform of company taxation also introduced numerous changes to the method for determining profit for trade tax purposes, reduced the denominator for trade tax from 5% to 3.5% and made certain operating expenses non-deductible for trade tax purposes. The effects of different tax rates for private partnerships and between foreign income tax rates and those of the Group parent Nordzucker AG are disclosed in the reconciliation statement under differences due to different foreign and domestic tax rates. The following deferred tax assets and liabilities result from temporary differences and tax loss carry-forwards: The deferred tax liabilities included deferred taxes of TEUR 51 (539) recognised for temporary differences on available-forsale financial instruments and derivatives in cash flow hedges. As these items are not recognised in profit and loss the corresponding deferred taxes are also recognised directly in accumulated comprehensive other income. Deferred tax assets are recognised for tax loss carry-forwards if it is sufficiently probable that they can be used in the near future. In the financial years 2007/2008 and 2006/2007 no deferred tax assets were recognised for temporary differences and tax loss carry-forwards for corporation taxes of TEUR 0 and TEUR 324 respectively and for trade taxes of TEUR 7,130 and Deferred taxes 29/2/ /2/2007 Deferred Deferred Deferred Deferred in TEUR tax tax tax tax assets liabilities assets liabilities Intangible assets 50 1, ,946 Investment property Other property, plant and equipment 13,192 63,359 9,607 82,381 Financial assets Inventories 2,383 3,643 4,039 2,574 Other assets 2,256 5,569 2, Pension provisions 6, ,399 0 Other provisions 6, ,102 2,315 Bank loans Trade payables Other liabilities 5,430 1,606 10, Leasing Deferred taxes on temporary differences 36,744 76,395 37,481 91,134 Deferred tax assets on tax loss carry-forwards 1, Carrying amount 37,995 76,395 38,059 91,134 72

77 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes TEUR 16,101 respectively, as it is not probable that sufficient taxable income will be generated in the near future. According to current legislation the tax losses for domestic taxes of TEUR 5,724 (5,116), for which deferred tax assets have been recognised, can be carried forward indefinitely. No income taxes are payable as a result of the dividend proposed by the Management Board for the financial year 2007/ 2008, which is based on the earnings of Nordzucker AG as determined under German commercial law. Notes to the consolidated balance sheet 16. Intangible assets Changes in individual intangible assets for the Group are shown in the fixed asset schedule beginning on page 76. With the exception of goodwill there were no intangible assets with an indefinite useful life in the reporting period. 17. Property, plant and equipment For changes in property, plant and equipment please refer to the fixed asset schedule for Nordzucker Group beginning on page 76. Assets which fulfil the criteria of IAS 17 for a finance lease are mainly a storage reservoir in Stöcken and various IT leasing contracts for IT equipment. As of February 29, 2008 property, plant and equipment which cost TEUR 142,543 (254,082) is still in use although it has already been fully depreciated. In the reporting period expenses of TEUR 1,929 (765) were capitalised for selfcreated property, plant and equipment. In the financial year 2007/2008 Nordzucker Group received compensation of TEUR 1,240 (1,584) for the destruction of or damage to property, plant and equipment from third parties, e.g. insurance companies. Net carrying amounts of capitalised leased items are as follows: Production quota purchased was written off in full (TEUR 5,519) in connection with the closures of the production site in Güstrow. Goodwill is not amortised, but in the financial year extraordinary depreciation was recognised on goodwill in connection with the acquisition of Sunoko d.o.o. in Novi Sad, Serbia. In the financial year 2007/2008 intangible assets purchased for TEUR 5,542 (4,991) were still in use, although they had already been fully amortised. Finance leases in TEUR 29/2/ /2/2007 Technical plant and machinery 2,750 1,593 Other plant, operating and office equipment Finance leases 2,893 1,820 Nordzucker 2007/

78 18. Impairment test for intangible assets and property, plant and equipment Impairment tests for intangible assets and property, plant and equipment are mainly performed on the basis of the values in use for cash-generating units. The reporting units have been determined according to the business activities of the Nordzucker Group and taking regional aspects into account. There was no change for the reporting unit Sugar domestic, which consists of the Nordzucker Group s factories in Germany, on the basis of the value in use as of February 28, In measuring the value in use of the reporting unit Sugar domestic, account was taken of the factory closure in Güstrow announced by Nordzucker AG in September 2007, and the effects of the restructuring under the sugar market regime. Measurement of the value in use as of February 29, 2008 resulted in neither a write-down nor a write-up. Budgets for the next 5 years are used in determining the cash flows of the reporting units. The interest rate used in the financial year 2007/2008 for discounting the cash flows of the reporting units is 8.35%, compared with 7.85% for the financial year 2006/2007. A growth rate of 0% was assumed for the long-term earnings component of the discounted cash flow calculation. An impairment test was required for the Hübner Group, which includes the subsidiaries Anton Hübner GmbH & Co. KG and Medopharm Arzneimittel GmbH & Co. KG, due to difficult market conditions in the health food store sector, which led to severe sales losses in the previous year. A write-down of TEUR 4,338 was recognised on the basis of the value in use calculated as of December 31, Budgets for the next 5 years were used to determine the cash flows of the reporting units. The interest rate used in the financial year 2006 to discount the cash flows of the reporting units was 8.5%. A growth rate of 0% was assumed for the long-term earnings component of the discounted cash flow calculation. As of the reporting date there was no indication either of further impairment or that the recognised impairment no longer exists. An impairment test was required for the Slovakian production unit, the subsidiary PovaÏsk cukor a.s., as a result of returning quota in Slovakia. Extraordinary depreciation of TEUR 24,900 on property, plant and equipment was recognised on the basis of the value in use calculated as of December 31, Budgets for the next 5 years were used to determine the cash flows of the reporting units. The interest rate used in the financial year 2007 to discount the cash flows of the reporting units was 8.34%. A growth rate of 0% was assumed for the long-term earnings component of the discounted cash flow calculation. 74

79 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes The current budget for the Serbian subsidiary assumes that long-term earnings are around 33% lower than assumed when the purchase price was determined. The value in use as of December 31, 2007 resulted in the recognition of extraordinary depreciation for goodwill allocated solely to the Serbian subsidiary of TEUR 24,000. Budgets for the next 5 years were used to determine the cash flows of the reporting units. The interest rate used in the financial year 2007 to discount the cash flows of the reporting units was 10.13%. A growth rate of 0% was assumed for the long-term earnings component of the discounted cash flow calculation. In addition to the impairment tests at the level of the reporting units, individual items of property, plant and equipment were written down to their recoverable amount, e.g. in the case of factory closures (see Note 10) and written back if the reasons for the impairment no longer existed. In the reporting year TEUR 3,626 (5,242) was written back. 19. Investment property The investment properties in the Nordzucker Group relate particularly to flats and land not required for operating purposes. In the financial year 2007/2008 the Group reported rental income of TEUR 157 (145) and corresponding expenses of TEUR 137 (183). There were also expenses of TEUR 38 (196) for which there was no corresponding rental income. The fair value of properties held for rent was TEUR 10,777 (15,065) as of February 29, Fair value was determined on the basis of internal estimates of market values using comparable properties. Subsequent acquisition costs of TEUR 1,065 (186) were capitalised in the financial year 2007/ Financial investments For changes in financial investments please refer to the fixed asset schedule for Nordzucker Group beginning on page Companies accounted for under the equity method In the financial year associated companies and joint ventures accounted for under the equity method reported total net profit of TEUR -6,341 (-3,412), revenues of TEUR 429,294 (35,559), assets of TEUR 231,688 (21,302) and liabilities of TEUR 218,372 (19,518) in their financial statements. The share of profit/loss from associated companies attributable to the Nordzucker Group in the reporting period was TEUR -2,581 (-1,706). In applying the equity method losses from an associated company are not recognised which exceed the carrying amount of the equity investment or other long-term receivables relating to the financing of the associate, as there is no requirement to invest further equity. This amount was exceeded by TEUR 1,479 (331) Other financial investments Available-for-sale financial instruments included in long-term financial assets are carried at fair value at the reporting date or at amortised cost, if fair value cannot be reliably determined by other valuation methods or because there is no active market. The shares in Cukrovary TTD a.s. are disclosed here, despite a stake of 33.5%, because the company s articles do not permit the Group to exercise significant influence over its operating and financial policy. Nordzucker 2007/

80 Consolidated fixed assets schedule for the previous year (2006/2007) Nordzucker AG, Braunschweig, Germany Cost or fair value As of Currency Acqui- Additions Reclassifi- Disposals As of 1/3/2006 effects sitions cations 28/2/2007 in TEUR in TEUR in TEUR in TEUR in TEUR in TEUR in TEUR Intangible assets Purchased rights and licences 19, , ,942 Internally produced software 2, ,554 Goodwill , ,730 Advance payments made Property, plant and equipment 22, ,833 61, , ,256 Land and buildings 424,895 5,312 32,438 6,753 1,038 10, ,327 Technical plant and machinery 1,293,724 7,517 48,272 25,658 2,025 39,804 1,337,392 Other plant, operating and office equipment 63, ,633 3,210-1,525 9,594 58,356 Advance payments made and plant under construction 2, ,944 16, ,196 20,988 1,784,427 13,769 90,287 52, ,703 1,877,063 Investment property 16, ,818 10,811 Financial assets Loans to related parties 7, ,500 0 Other loans 1, ,533 Shares in associated companies at equity 49, ,159 10,918 Investments in other companies 21, ,848 Other investments 14, ,626 94, ,953 47,925 1,917,280 13, , , ,501 2,065,055 The disposals in the category land and buildings relate to assets purchased for TEUR 2,863 and residual carrying amounts of TEUR 190 which have been reclassified as held for sale. 76

81 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Accumulated depreciation, amortisation and extraordinary depreciation Carrying amounts As of Currency Depreciation, Extraordinary Reversals of Reclassifi- Disposals As of As of As of 1/3/2006 effects amortisation depreciation extraordinary cations 28/2/ /2/ /2/2006 depreciation in TEUR in TEUR in TEUR in TEUR in TEUR in TEUR in TEUR in TEUR in TEUR in TEUR 11, , ,718 60,224 7,718 1, , , , , , ,929 9, , ,754 4, , , , , ,085 1,022 29, ,996 1,342 36, , , ,639 50, , ,340 8,929 44,509 13,847 12, ,988 2,494 1,233,635 1,601 41,427 4,620 5, ,126 1,222, , ,792 7, ,007 4,432 6,379 8, ,500 1, , , , , ,305 2, ,130 19,718 19,841 13, , , , ,785 21,140 68,431 1,280,084 1,696 49,503 6,678 5, ,148 1,274, , ,196 Nordzucker 2007/

82 Consolidated fixed assets schedule 2007/2008 Nordzucker AG, Braunschweig, Germany Cost or fair value As of Currency Additions Reclassifi- Disposals As of 1/3/2007 effects cations 29/2/2008 in TEUR in TEUR in TEUR in TEUR in TEUR in TEUR Intangible assets Purchased rights and licences 79, , ,959 79,803 Internally produced software 2, ,588 Goodwill 46, ,184 44,426 Advance payments made Property, plant and equipment 129, , , ,818 Land and buildings 460,327 3,007 9,085-5,938 18, ,259 Technical plant and machinery 1,337,392 3,102 94,542 11,405 86,710 1,359,731 Other plant, operating and office equipment 58, ,427-1,448 6,323 55,184 Advance payments made and plant under construction 20, ,760-11,785 5,196 20,796 1,877,063 6, ,814-7, ,451 1,883,970 Investment property 10, ,589 3,780 14,703 Financial assets Other loans 1, Shares in associated companies at equity 10, , ,959 Investments in other companies 21, ,822 Other investments 13, , , , ,578 39,410 2,065,055 6, , ,952 2,064,901 The disposals in the category land and buildings relate to assets purchased for TEUR 3,747 and residual carrying amounts of TEUR 2,101 which have been reclassified as held for sale. 78

83 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Accumulated depreciation, amortisation and extraordinary depreciation Carrying amounts As of Currency Depreciation, Extraordinary Reversals of Reclassifi- Disposals As of As of As of 1/3/2007 effects amortisation depreciation extraordinary cations 29/2/ /2/ /2/2007 depreciation in TEUR in TEUR in TEUR in TEUR in TEUR in TEUR in TEUR in TEUR in TEUR in TEUR 19, ,890 6, ,931 27,690 52,113 60,224 1, , , ,000 20,426 46, , ,965 30, ,931 53,374 73, , , ,361 25, ,366 16, , , , , ,287 44,445 1, , , , ,687 44, , ,680 42,926 12,258 13, ,649 20,988 1,222,027 1,183 38,725 70,491 2,557-5, ,683 1,220, , ,036 4, ,068 5,365 1,298 7,610 7,093 6,379 1, , , , ,098 3, , ,130 19,692 19,718 13, , , , ,218 14,512 24,898 21,140 1,274,571 1,407 47, ,373 3, ,130 1,296, , ,484 Nordzucker 2007/

84 21. Inventories Inventories are made up as follows: In the reporting year unfinished goods include for the first time the thick juice required to produce bioethanol. Inventories of TEUR 70,432 (92,622) are carried at net realisable value. Write-downs on inventories amounted to TEUR 3,967 (9,293). Inventories in TEUR 29/2/ /2/2007 Raw materials, consumables and supplies 30,347 26,141 Work in progress 31, Finished goods and merchandise 570, ,436 Inventories 631, , Trade receivables Trade receivables are made up as follows: Details of the default risks and the term structure of trade receivables are given in Note 38. Write-downs on trade receivables in the financial year amounted to TEUR 632 (2,328). Trade receivables in TEUR 29/2/ /2/2007 Trade receivables (gross) 73, ,001 Impairment allowances on trade receivables 3,446 3,372 Trade receivables (from external companies) 70, , Receivables from related parties Receivables from related parties are made up as follows: Receivables from associated companies and joint ventures relate to Eurosugar S.A.S. Paris, France, which has supplied the majority of Nordzucker Group s end customers since October 1, Receivables from related parties and companies in TEUR 29/2/ /2/2007 Receivables from associated companies and joint ventures 128,130 0 Receivables from affiliated companies 0 1,727 Receivables from other related parties 7,052 3,327 Receivables from related parties 135,182 5,054 Receivables from affiliated companies are owed by Nordzucker Holding AG. The receivables from related parties remaining after consolidation are classified as financial assets and other receivables. Details on the default risks and the term structure for this category can be found in Note

85 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes 24. Financial assets The financial assets are made up as follows: With the exception of positive fair values of derivatives and available-for-sale securities, the financial assets have been classified in the financial assets and other receivables category of financial instruments. Details of the default risks and term structure for this category can be found in Note 38. Financial assets in TEUR 29/2/ /2/2007 Claims for damages 4,683 3,574 Positive fair value of derivatives 697 1,564 Available-for-sale securities Other financial assets 5,874 18,563 Financial assets 11,264 23,711 Current securities are included in the financial investment class, which is part of the available-for-sale category and are all held at fair value. In the previous year the main item of other financial assets was the receivable of TEUR 12,898 for the sale of beet delivery rights. 25. Other assets Other assets are made up as follows: Miscellaneous other assets include the discounted amount of the entitlement to restructuring aid (see Note 7). Other assets in TEUR 29/2/ /2/2007 Receivables from other taxes 14,672 17,207 Miscellaneous other assets 130,430 17,833 Other assets 145,102 35, Assets scheduled for sale Assets classified as held for sale in accordance with IFRS 5 include land and buildings held at TEUR 1,948 (257). 27. Shareholders equity Changes in Group shareholders equity are shown in the table of changes in shareholders equity. Capital management at Nordzucker Group is founded on a strong equity base and a sustainable dividend policy, in order to secure current operations on the one hand and to enable a reasonable dividend yield for the shareholders on the other. As of February 29, 2008 the equity ratio was 40% (41%) and as in the previous year the Management Board intends to propose a dividend of EUR 0.48 per share at the Annual General Meeting. Nordzucker AG s company articles do not require any particular amount of equity. The Management Board of Nordzucker AG steers the company for profit on the basis of corporate targets which are oriented towards the capital markets. These include meeting certain financial indicators at Group level. The main financial indicators for the Group are total profitability, return on sales, equity ratio and return on equity, for which targets have been set Subscribed capital Subscribed capital (ordinary share capital) is unchanged compared to February 28, 2007 and 2006, and as of February 29, 2008 amounts to EUR 123,651, divided into 48,301,300 registered common shares. Subject to the approval of the Supervisory Board, the Management Board is authorised to increase the share capital by up to EUR 32.0 million (authorised share capital). The ordinary share capital is fully paid-in and has a nominal share of subscribed capital of EUR 2.56 per share, as in the previous year. As of the reporting date Nordzucker Holding AG, Braunschweig, Germany had provided evidence that it held more than 50% of the shares, with 76.23%. Nordzucker 2007/

86 27.2. Capital reserves The capital reserves have been formed from share premiums paid in the course of capital increases by Nordzucker AG Retained earnings Retained earnings are made up of the net income earned in prior financial years and the current period by the companies included in the consolidated financial statements. Goodwill arising on acquisitions made by the Group before March 1, 2004 has been set off against reserves. In the IFRS opening balance sheet the equalisation amount from conversion of financial statements prepared in foreign currencies was set off against retained earnings. Retained earnings include statutory reserves of 10% of subscribed capital, amounting to TEUR 12,365, which in line with statutory regulations (Sec. 150 German Stock Corporation Act) are not available for distribution to shareholders Accumulated other comprehensive income Accumulated other comprehensive income is made up as follows: As of February 28, 2006 the fair value reserve for derivatives in cash flow hedges amounted to TEUR 164 and exchange rate differences from consolidation of foreign subsidiaries recognised in equity to TEUR 14,344. Accumulated other equity in TEUR 29/2/ /2/2007 Fair value adjustment to derivatives cash flow hedges Exchange rate differences from consolidation of foreign subsidiaries 27,941 22,161 Accumulated other equity 28,066 23, Minority interests Minority interests exist primarily in the following companies: Minority interests in TEUR 29/2/ /2/2007 Sunoko d.o.o. 0 60,436 63,779 Cukrownia Chełmża S.A., i.l. 2,248 1,995 Považský cukor a.s. 1,110 1,208 Cukrownia Melno S.A. i.l Cukrownia Krasiniec S.A. i.l Other companies Minority interests 65,244 68, Pension obligations Provisions for pension obligations are made for accrued and current benefits of both currently active and former members of staff of Nordzucker Group and of their surviving dependents. Benefit obligations are structured in line with the legal, fiscal and economic conditions in each country. The Group has both defined contribution plans and defined benefit plans. Retirement benefit commitments are based on collective agreements and in a few cases on individual agreements with fixed benefit amounts. The defined benefit plans have commitments either covered by provisions or funded by plan assets. Provisions for pension benefits are determined in accordance with IAS 19 on the basis of actuarial assumptions. 82

87 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes The following weighted variables have been used in the financial years 2007/2008 and 2006/2007. For domestic companies in the Nordzucker Group the assumptions for life expectancy are taken from the actuarial tables 2005G by Dr Klaus Heubeck. Expenses of TEUR 7,550 (6,976) were incurred in 2007/2008 for defined benefit plans, which are made up as follows: Pension obligations parameters 29/2/ /2/2007 Discount rate (%) Salary increase (%) Pension increase (%) Expenses for pensions in TEUR 29/2/ /2/2007 Service cost 2,204 2,867 Effects of curtailments and cancellations of pension plans Amortisation of unrealised actuarial gains (-) and losses (+) Personnel expenses 2,232 2,867 Interest expense for provisions for pension obligations in the financial year 7,345 6,849 Return on plan assets -2,899-2,746 Effects of changes in exchange rates Interest expense 5,318 4,109 Expenses for pensions 7,550 6,976 Changes in the provisions disclosed in the balance sheet for pensions and similar obligations are as follows: The actual return on plan assets was TEUR 2,286 (2,109), the variation due to experience was therefore TEUR -613 (-637). Net pension obligations in TEUR 29/2/ /2/2007 Change in present value of pension entitlements Present value of pension entitlements at the beginning of the financial year 159, ,364 Service cost in the financial year 2,204 2,867 Interest expense for pensions in the financial year 7,345 6,849 Pension payments -9,033-8,810 Transfers of pension obligations from other companies, including intra-group transfers Transfers of pension obligations to other companies, including intra-group transfers -1, Effects of curtailments and cancellations of pension plans Actuarial gain (-)/loss (+) in the financial year -4,266-15,120 Effects of changes in exchange rates Present value of pension entitlements at the end of the financial year 156, ,925 Nordzucker 2007/

88 As of February 28, 2006 the present value of pension obligations was TEUR 174,364 (February 28, 2005: TEUR 161,205), the present value of plan assets was TEUR 46,677 (February 28, 2005: TEUR 807), the unrealised actuarial losses amounted to TEUR 25,706 (February 28, 2005: TEUR 13,753) and the pension provisions to TEUR 101,981 (February 28, 2005: TEUR 146,625). in TEUR 29/2/ /2/2007 Change in plan assets Present value of plan assets for funded pension obligations at the beginning of the financial year 44,980 46,677 Contributions to pension funds/plan assets Income from plan assets -4,147-3,997 Expected return on pension plan assets 2,899 2,746 Actuarial gain (-)/loss (+) for the financial year Present value of plan assets for funded pension obligations at the end of the financial year 43,438 44,980 net pension obligations 112, ,945 Unrealised actuarial gains (+)/ losses (-) -7,055-10,752 Provision for pension obligations 105, , Other provisions Other provisions are made up as follows: Other provisions As of Exchange As of in TEUR 1/3/2007 rate effects Addition Utilisation Reversal 29/2/2008 Sugar regime levies 3, , Recultivation obligations 1, , ,443 Expenses for anniversaries 2, ,976 Partial early retirement 2, ,091 Profit sharing, bonuses and other gratuities 6, ,636 6, ,636 Early retirement 20, ,639 6,814 2,720 24,978 Miscellanous other provisions 13, ,216 10,151 1,525 16,666 Other provisions 51, ,079 28,007 5,879 62,790 Provisions for recultivation obligations include the forecast expenses for the demolition of buildings and recultivation of land used for operations. These include the demolition obligations for the former production site in Güstrow. The provision for early retirement covers the Group s forecast obligations under existing collective early retirement agreements as part of a redundancy settlement in connection with changes to the sugar regime which will come into effect in subsequent years. These include the measures taken in connection with the closure of the Güstrow site. This item also includes other individual agreements. The addition to this provision includes interest of TEUR 505 at 5%. Miscellaneous other provisions were made for bonuses and commissions, imminent losses from pending transactions and other anticipated expenses. 84

89 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes 30. Financial liabilities Financial liabilities are made up as follows: Financial liabilities in TEUR 29/2/ /2/2007 Bank loans and overdrafts 390, ,884 Liabilities from finance leases 1,198 1,444 Financial liabilities 392, ,328 As of February 29, 2008 the liabilities to banks have the following term structure: Liabilities to banks Remaining term Remaining term Remaining term Total in TEUR of up to one year of 1-5 years above 5 years 29/2/ , , ,951 28/2/ , , ,884 As of February 29, 2008 the average interest rate for financing is 4.5% (4.4%). Interest on bank loans partly depends on certain financial ratios such as the equity ratio, EBITDA and gearing. Currently unused long-term and short-term lines of credit totalling TEUR 319,303 (528,478) have also been confirmed for Nordzucker Group companies in the financial year. In the financial year Nordzucker had not pledged any financial assets within the meaning of IFRS 7.14 as collateral for financial liabilities. Nordzucker Group did not experience any payment difficulties or breaches of contract either in the reporting period or the previous year. 31. Accounts payable Accounts payable are made up as follows: Accounts payable in TEUR 29/2/ /2/2007 Liabilities towards sugar beet suppliers 144, ,975 Other accounts payable 55,899 47,134 Accounts payable 200, , Liabilities towards related parties Liabilities towards related parties and companies are made up as follows: Liabilities towards related parties have been classified under other financial liabilities and liabilities towards related parties. Liabilities towards related parties and companies in TEUR 29/2/ /2/2007 Liabilities towards associated companies and joint ventures 2 0 Liabilities towards other related parties 5,769 3,064 Liabilities towards related parties 5,771 3,064 Nordzucker 2007/

90 33. Other financial liabilities Other financial liabilities are made up as follows: Other financial liabilities in TEUR 29/2/ /2/2007 Purchase price liabilities 27, ,836 Negative fair value of derivatives Other financial liabilities 4,557 11,202 Other financial liabilities 32, ,182 Purchase price liabilities include purchase price payments in connection with the acquisition of the Serbian subsidiary. In the previous year they also included the purchase of additional production quotas. With the exception of the derivatives the other financial liabilities are classified as other financial liabilities and liabilities towards related parties. The negative fair value of derivatives belongs to the derivatives class of financial instruments. 34. Other liabilities Other liabilities are made up as follows: In connection with the initial application of IFRS 7 as of February 28, 2007 TEUR 98,202 were reclassified from other financial liabilities to other liabilities in accordance with IAS 8.42 to facilitate comparison. Liabilities from investment grants, subsidies and other support payments derive from public subsidies in connection with the purchase or production of subsidised property, plant and equipment. They are reversed through profit and loss over the useful life of the subsidised assets. Other liabilities in TEUR 29/2/ /2/2007 Outstanding social security contributions 2,119 1,756 Investment grants, subsidies and other support payments 19,345 15,508 Deferrals 18,299 13,808 Advance payments received for orders 148 3,243 Liabilities for the restructuring levy 118,549 98,202 Miscellaneous other liabilities 49,962 16,999 Other liabilities 208, ,516 Miscellaneous other liabilities mainly consist of liabilities towards staff for outstanding wages and salaries as well as unused holiday entitlement. 86

91 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Notes to the consolidated cash flow statement 35. Components of cash and cash equivalents The components of cash and cash equivalents are the same as in the balance sheet. No cash or cash equivalents disclosed in the consolidated cash flow statement was used for bank guarantees or escrow payments for warranties. 36. Non-cash transactions In 2007/2008 and 2006/2007 the following non-cash transactions took place for financing and investing purposes: Non-cash transactions in TEUR 29/2/ /2/2007 Finance lease agreements signed Other disclosures 37. Other disclosures on financial instruments Financial instruments within the meaning of IFRS 7 are contracts that give rise to a financial asset of one entity and a financial liability or equity instrument of another entity. In this context financial assets include cash and cash equivalents, a contractual right to receive cash or other financial assets such as trade receivables, derivative financial instruments and equity instruments of another company. Financial liabilities include contractual obligations to deliver cash or other financial assets. These include borrowing, short-term loans, accounts payable and derivatives. The following presentation starting on Page 88 provides information on the carrying amounts for the individual measurement categories. It also shows the fair value for each class of financial instrument. The presentation enables a comparison between carrying amounts and fair values. The assets defined in IFRS 5 are disclosed separately. For cash and other current original financial instruments, i.e. accounts payable, financial assets and other receivables and liabilities, fair value and the carrying amount on each balance sheet date are the same. Nordzucker Group does not make use of the fair value option. As of the reporting date there are also no financial instruments in the categories held for trading or held to maturity. Nordzucker 2007/

92 Overview by category and by class of financial instruments for the previous year (2006/2007) Nordzucker AG, Braunschweig, Germany Assets Valuation Total 28/2/2007 Nominal value Valuation category Cash & cash equivalents/ cash reserve in TEUR Carrying Carrying amount Fair value amount Fair value Financial investments 20, Financial assets and other receivables 27, Trade receivables 117, Derivatives 0 1, Cash and cash equivalents 86, ,856 0 Total 252,033 1,587 86,856 0 Equity and liabilities Valuation Total 28/2/2007 Amortised cost Valuation category Financial liabilities valued at amortised cost in TEUR Carrying Carrying amount Fair value amount Fair value Financial liabilities 216, ,328 0 Accounts payable 223, ,112 0 Other financial liabilities and liabilities towards related parties 117, ,102 0 Derivatives Total 556, ,

93 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Amortised cost Fair value Loans and receivables Available-for-sale financial assets (AFS) Held-for-trading (FVTPL-HFT) Derivatives in hedging relationships under IAS 39 Carrying Carrying Carrying Carrying amount Fair value amount Fair value amount Fair value amount Fair value , , , , , , ,564 Fair value Derivatives in hedging relationships under IAS 39 Held-for-trading (FVTPL-HFT) Fair value option (FVTPL-FVO) Carrying Carrying Carrying amount Fair value amount Fair value amount Fair value Nordzucker 2007/

94 Overview by category and by class of financial instruments for the financial year (2007/2008) Nordzucker AG, Braunschweig, Germany Assets Valuation Total 29/2/2008 Nominal value Valuation category Cash & cash equivalents/ cash reserve in TEUR Carrying Carrying amount Fair value amount Fair value Financial investments 21, Financial assets and other receivables 147, Trade receivables 70, Derivatives Cash and cash equivalents 28, ,846 0 Total 268, ,846 0 Equity and liabilities Valuation Total 29/2/2008 Amortised cost Valuation category Financial liabilities valued at amortised cost in TEUR Carrying Carrying amount Fair value amount Fair value Financial liabilities 392, ,148 0 Accounts payable 200, ,236 0 Other financial liabilities and liabilities towards related parties 38, ,739 0 Derivatives Total 631, ,

95 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Amortised cost Fair value Loans and receivables Available-for-sale financial assets (AFS) Held-for-trading (FVTPL-HFT) Derivatives in hedging relationships under IAS 39 Carrying Carrying Carrying Carrying amount Fair value amount Fair value amount Fair value amount Fair value 1, , , , , , Fair value Derivatives in hedging relationships under IAS 39 Held-for-trading (FVTPL-HFT) Fair value option (FVTPL-FVO) Carrying Carrying Carrying amount Fair value amount Fair value amount Fair value Nordzucker 2007/

96 Overview of the net earnings from financial instruments Nordzucker AG, Braunschweig, Germany 29/2/2008 in TEUR From From interest dividends Cash and cash equivalents/cash reserve 4, Loans and receivables Available-for-sale financial assets 1,036 2,843 Held-for-trading financial instruments (FAHFT and FLHFT) 0 -- Held at amortised cost (FLAC) -12, Total -6,598 2,843 28/2/2007 in TEUR From From interest dividends Cash and cash equivalents/cash reserve 3, Loans and receivables 1, Available-for-sale financial assets -26 2,945 Held-for-trading financial instruments (FAHFT and FLHFT) 0 -- Held at amortised cost (FLAC) -8, Total -3,847 2,945 92

97 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes From subsequent valuation At Currency Other Net income/loss fair value conversion Write-down Write-back Disposal results 2007/ , , , , , , From subsequent valuation At Currency Other Net income/loss fair value conversion Write-down Write-back Disposal results 2006/ , ,328 1, , , , ,328 1,189 1, Nordzucker 2007/

98 Net income from financial instruments (Page 92) classified under the measurement categories defined in IAS 39 and listed in Note 3.8- results from changes in fair value, write-downs, write-backs and disposal. Also included are interest income and expense and other earnings components of financial instruments not held at fair value through profit and loss. Net interest includes interest income of TEUR 8,245 (4,967) and interest expense of TEUR 13,808 (8,814) from financial instruments not held at fair value through profit and loss. Expenses for fees and commissions of TEUR 278 (700) were incurred in connection with these financial instruments which were recognised directly in profit and loss and not included when calculating the effective interest rate. In the reporting period there was no interest income from written-off financial assets. 38. Risk management General remarks The financial policy framework is defined by senior management. Implementing financial policy and ongoing risk management is the responsibility of Nordzucker Group s Finance department, whereby financing and hedging operations are carried out and monitored by the companies in the Group. Operational cash and liquidity management and management of credit risks and receivables are also decentralised, i.e. organised at the level of Group companies. Since October 1, 2007 sugar revenues have been generated almost exclusively by Eurosugar S.A.S., Paris/France, which supplies both its own end customers and those previously served by Nordzucker, so that the credit risk for the Nordzucker Group has gone down accordingly. By the nature of its business Nordzucker Group is exposed to default and credit risks, liquidity and exchange rate risks and interest rate risks. These are controlled by means of suitable risk management processes. Nordzucker Group uses derivative financial instruments to hedge against interest and exchange rate fluctuations. The use of these derivatives is governed by Group guidelines and restricted to the hedging of existing transactions or those which are sufficiently likely to take place. The guidelines define the individuals responsible, the limits and reporting and stipulate a strict separation between trading and clearing. This transparent and functional manner of organising risk management processes applies to all types of risk Default risk Credit or default risk is the risk that business partners do not meet their contractual payment obligations, causing Nordzucker Group to suffer a loss as a result. Receivables management and management of default risks are largely carried out by Eurosugar SAS, Paris/France. As part of credit risk management business partners are subject to a credit scoring in order to reduce credit risk. Identifiable default risks are accounted for by writedowns, whereby the risk of default on receivables is limited in some cases by trade credit insurance. Nordzucker Group does not see itself as exposed to a significant credit risk from any individual counterparty. As the customer structure for the Group and for Eurosugar SAS, Paris/France is diverse there is only a limited concentration of credit risk. There is therefore no special monitoring and management on the basis of specific risk categories to avoid a concentration of risk. The maximum default risk is equal to the carrying amounts for the individual categories of financial assets, less all writedowns, and irrespective of any agreements to reduce risk. (See overview of classes and categories of financial instruments starting on page 88 under Note 37). In the reporting period there were no financial assets which would have become overdue and/or impaired had the contractual terms not been renegotiated. For the portion of the receivables portfolio which has neither been written down nor is overdue there is no indication as of the reporting date that Nordzucker Group s debtors will not fulfil their payment obligations. The following table shows total carrying values, the carrying values for financial assets which are neither overdue nor impaired and the term structure of financial assets which are not impaired but overdue, for the relevant classes of financial instruments: 94

99 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Term structure of financial assets Not written-down as of the reporting date and overdue as follows: Neither writtenin TEUR Total down nor carrying overdue as of the Less than Between 31 Between 61 Between 91 More than As of 29/2/2008 amount reporting date 30 days and 60 days and 90 days and 180 days 181 days Financial investments 21,048 21, Financial assets and other receivables 147, ,807 41, ,513 Trade receivables 70,398 57,762 10,546 1, Total 239, ,617 51,602 1, ,700 As of 28/2/2007 Financial investments 20,394 20, Financial assets and other receivables 27,191 20,124 7, Trade receivables 117,629 66,304 48, ,843 Total 165, ,822 55, ,843 The total carrying amount of financial instruments in the classes financial investments, financial assets and other receivables and trade receivables is TEUR 239,171 (165,214). Write-downs of TEUR 3,446 (3,372) were made. In the current and previous reporting period Nordzucker has neither pledged nor sold collateral within the meaning of IFRS Liquidity risk Liquidity risk is the risk that the company cannot meet its payment obligations at the contractually agreed time. To ensure Nordzucker Group s liquidity the liquidity needs are monitored and planned decentrally at the level of the Group companies. Sufficient cash is held to be able to meet all obligations when they are due. Shortterm lines of credit, which can be drawn down as needed, provide additional liquidity. The following table shows contractually agreed (undiscounted) interest and capital repayments for the original financial liabilities and for derivative financial instruments. Nordzucker 2007/

100 Term to maturity in TEUR Carrying Gross inflow/ Term to maturity Term to maturity Term to maturity amount outflow(-) up to from one to more than 29/2/2008 one year five years five years Financial liabilities 392, , , ,646 0 Trade liabilities 200, , , Other financial liabilities and liabilities towards related parties 38,739-38, ,056 16,766 Derivative financial assets 697 5,260 2,849 2,411 0 Derivative financial liabilities 521 6,576 2,192 4,384 0 Total 632, , , ,497 16,766 28/2/2007 Financial liabilities 216, ,835 95, , Trade liabilities 223, , , Other financial liabilities and liabilities towards related parties 117, , ,674 7,428 0 Derivative financial assets 1,564 7,548 2,911 4,637 0 Derivative financial liabilities 144 6, ,772 0 Total 558, , , , The term to maturity analysis includes all instruments held for which payments have been contractually agreed as of the reporting date. Forecast payments on expected future liabilities are not included. Floating rate interest payments on financial instruments are determined using the last interest rates set before the balance sheet date. Financial liabilities repayable at any time are allocated to the earliest category Market risks Market risks arise from potential changes in risk factors which lead to fluctuations in market values or alterations in future cash flows. The relevant risk factors for Nordzucker Group are exchange rate and interest rate fluctuations. Nordzucker Group does not hold financial instruments subject to other price risks. a. Exchange rate risk Due to its business operations in different countries which are not part of the Eurozone, Nordzucker Group is exposed to an exchange rate risk. At year-end no measures were in place to hedge currency risks. IFRS 7 requires the disclosure of a sensitivity analysis to illustrate the dimensions of exchange rate risks. A sensitivity analysis shows the effects of changes in the given exchange rates on profit and loss and equity for Nordzucker Group at the reporting date. The effects are determined by applying a hypothetical change of 10% in the exchange rates to the amount of the relevant items in foreign currencies (the net risk position in the foreign currency) at the reporting date. It is assumed that the exposure at year-end is representative of the whole year. Assuming an increase/decrease in the value of the Euro to the Polish Zloty as of the reporting date February 29, 2008, the profit or loss for the financial year 2007/2008 would have been TEUR 1,031 (2,833) higher/lower and equity would have increased/declined by TEUR 0 (0). This interpretation applies accordingly to the other foreign currencies shown in the table. For the net risk position in Slovakian Crowns it should be noted that as of February 29, 2008 the conversion rate to the Euro has already been set and that Slovakia is to introduce the Euro as legal tender on January 1,

101 rletter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Sensitivity analysis: currencies Polish Zloty Slovakian Crown Hungarian Forint Serbian Dinar in TEUR 2007/ / / / / / / /07 Spot rate for EUR 1 (31/12) Net risk position in foreign currency (in million currency units) ,455 1,008 16,941 18, ,425 Decrease in value (EUR vs. foreign currency) effect on earnings 1,031 2,833 4,340 2,930 6,714 7, ,593 Increase in value (EUR vs. foreign currency) effect on earnings -1,031-2,833-4,340-2,930-6,714-7, ,593 b. Interest rate risk Due to its borrowing activities Nordzucker Group is exposed to an interest rate risk. Borrowing is carried out in various currencies. The relevant currencies are the Euro, Polish Zloty, Slovakian Crown, Hungarian Forint and Serbian Dinar. As of the reporting date Group companies hold a total of TEUR 390,951 (214,271) in interest bearing or interest rate-sensitive instruments. Of these TEUR 355,454 (168,629) are at floating rates and TEUR 35,497 (45,642) at fixed rates of interest. In accordance with IFRS 7 interest rates risks are illustrated using sensitivity analyses. The sensitivity analysis determines the effect of a change in market interest rates on profit and loss and equity as of the reporting date. An interest rate risk can arise as a fair value risk or a cash flow risk. The sensitivity analysis for Nordzucker Group shows the effect on profit and loss and equity of a parallel movement in the relevant yield curve of +/- 50 basis points. A hypothetical change of the interest rates applicable to Nordzucker Group s financial instruments would have had the following effects as of the reporting date: Sensitivity analysis: interest rates in TEUR Euro Polish Zloty Slovakian Crown Hungarian Forint Serbian Dinar 2007/ bp -50 bp +50 bp -50 bp +50 bp -50 bp +50 bp -50 bp +50 bp -50 bp Effect on earnings -1,353 1, Effect on equity 1,089-1, /2007 Effect on earnings Effect on equity 1,473-1, Nordzucker 2007/

102 c. Hedging transactions Nordzucker Group uses derivative financial instruments to hedge exchange rate and interest rate risks. In accordance with its internal guidelines Nordzucker does not use derivative financial instruments solely for trading purposes. In addition to the natural hedge approach derivative spread hedges for less than a year are carried out to reduce exchange rate risk for beet payments by the Eastern European companies. Exchange rate risks are also hedged by means of appropriate derivatives such as currency options also for periods of less than a year. As of the reporting date Group companies hold no currency derivatives. The interest rate risk existing for floating rate loans is reduced by means of interest rate derivatives. All interest rate derivatives are designated as cash flow hedges for hedge accounting purposes in line with IAS 39. In the financial year 2005/2006 Nordzucker AG entered into a syndicated loan agreement for EUR 50 million with Alliance Lebensversicherungs-AG as part of the partial transfer of retirement benefit obligations. The loan is repayable in ten equal semi-annual instalments by December 30, The interest rate is variable and depends on the equivalent interest rate for the period (EURIBOR). To hedge the interest rate risk two interest rate swaps were closed for the amount and the maturity of the loan. The exchange of interest (settlement) takes place semi-annually in arrears on June 30 and December 31. At the end of the reporting period the market value of the interest rate swap was TEUR 294. The syndicated loan for EUR 400 million, which was refinanced in 2005/2006, was also extended for one year by exercising an extension option for the floating rate portion of EUR 350 million for an amount of EUR 336 million, and for a further year for an amount of EUR 294 million. To hedge the interest rate risk for the fixed rate portion of EUR 50 million an interest rate swap was closed. The exchange of interest takes place quarterly in arrears on May 31, August 31, November 30 and February 28. The fair value of the interest rate swap at the end of the financial year was TEUR 403. In addition the planned drawdown of EUR 50 million from the floating portion of currently EUR 350 million was hedged from December 1, 2007 to February 28, 2011 with a forward swap. Interest is exchanged quarterly in arrears on May 31, August 31, November 30 and February 28. The fair value of this interest rate swap at the end of the financial year is TEUR The value of the interest rate hedges (market value, also known as mark to market = MTM) as of the reporting date was determined by the contracting banks using recognised mathematical models. This involved ascertaining the relevant market data such as money market rates and swap rates as of the balance sheet date, then determining the forward rates and present values of future cash flows using these data and subsequently calculating the overall MTM. 98

103 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes The nominal amounts and market values of derivatives are made up as follows: Derivative financial instruments 29/2/ /2/2007 The effective portion of changes in market value of cash flow hedges is recognised directly in equity without effect on profit and loss. In the reporting period TEUR -1,244 (1,155) was recognised in equity. in TEUR Nominal amount Fair value Nominal amount Fair value Forward interest rate swaps 100, , Interest rate swaps 20, , It is generally assumed that the hedged items will actually take place. If a hedging transaction is cancelled the amounts accumulated in comprehensive other income during the term of the transaction are reversed when the hedged item is recognised in profit and loss or if the hedged item no longer takes place. The following table shows when the cash flows from cash flow hedges take place and what effects on profit and loss are expected. Interest rate hedges Cash flows in TEUR Begin End Nominal Interest 29/2/2008 amount rate Forward interest rate swap 1/3/ /2/ ,000 3 month Euribor Forward interest rate swap 1/12/ /2/ ,000 3 month Euribor Interest rate swap 11/3/ /12/ ,000 6 month Euribor Interest rate swap 11/3/ /12/ ,000 6 month Euribor 28/2/2007 Interest rate cap 16/1/ /2/ ,000 1 month Euribor Forward interest rate swap 1/3/ /2/ ,000 3 month Euribor Forward interest rate swap 1/12/ /2/ ,000 3 month Euribor Interest rate swap 11/3/ /12/ ,000 6 month Euribor Interest rate swap 11/3/ /12/ ,000 6 month Euribor 39. Significant subsidiaries and joint ventures The following trading companies structured as limited partnerships (GmbH & Co. KG) are exempt pursuant to Sec. 264b HGB from the obligation to prepare financial statements in accordance with the regulations applicable to companies with limited liability: NORDZUCKER GmbH & Co. KG, Braunschweig fuel21 GmbH & Co. KG, Klein Wanzleben Medopharm Arzneimittel GmbH & Co. KG, Ehrenkirchen Anton Hübner GmbH & Co. KG, Ehrenkirchen Significant subsidiaries Group stake Domestic subsidiaries NORDZUCKER GmbH & Co. KG, Braunschweig 100% fuel21 GmbH & Co. KG, Klein Wanzleben 100% Anton Hübner GmbH & Co. KG, Ehrenkirchen 100% Medopharm Arzneimittel GmbH & Co. KG, Freiburg 100% Foreign subsidiaries Považský cukor a.s., Trenčianska Teplá/Slovakia >97% Nordzucker Polska S.A., Przeżmierowo/Poland >99% Mátra Cukor Rt., Hatvan/Hungary >99% Sunoko d.o.o., Novi Sad/Serbia 51% Joint ventures Eurosugar S.A.S., Paris/France 33% The list of Nordzucker AG s and the Group s equity investments is filed with and published in the electronic edition of the German Federal Gazette (Elekronischer Bundesanzeiger). Nordzucker 2007/

104 40. Related party transactions For Nordzucker Group related parties within the meaning of IAS 24 are individuals and companies which control the Group or exercise significant influence over it or are controlled or significantly influenced by the Group. The first category includes the active members of the Management Board and Supervisory Board of Nordzucker AG and its majority shareholder Nordzucker Holding AG. The subsidiaries, associated companies and joint ventures in the Nordzucker Group are also defined as related parties. Receivables from and liabilities towards related parties are based on arm s length transactions. The following commercial relationships existed with related parties in addition to those existing with fully consolidated subsidiaries: Related party transactions: in TEUR 29/2/ /2/2007 Balance sheet Receivables from related parties 135,183 5,054 Liabilities towards related parties 5,770 3,064 1/3/2007 1/3/2006 in TEUR - 29/2/ /2/2007 Income statement Revenues 584,657 4,578 Services provided to related parties Net financial income/loss -1,945 3,984 Receivables from related parties result almost exclusively from trade in goods and services. Of these TEUR 128,131 (0) relate to the joint venture Eurosugar S.A.S., Paris/France. Additional receivables of TEUR 4,190 (2,818) are owed by the associated company MEF Melasse Extraktion Frellstedt GmbH, Frellstedt, and TEUR 2,817 (0) by the other investee company Cukrovary TTD a.s. Dobrovice/Czech Republic. No write-downs were necessary for the receivables listed. Of the liabilities towards related parties TEUR 1,934 (1,222) relate to Union Zucker Südhannover GmbH, Nordstemmen, and TEUR 1,021 (541) to Nordharzer Zucker-AG, Schladen, and TEUR 74 (0) to Nordzucker Holding AG, Braunschweig. These companies are shareholders of Nordzucker AG and the liabilities relate to current settlement accounts. The remaining liabilities are owed to other related parties and are mainly from trade in goods and services. Revenues of TEUR 578,620 (0) were derived from Eurosugar S.A.S., Paris/France and of TEUR 6,037 (4,578) from MEF Melasse Extraktion Frellstedt GmbH (Frellstedt). Services provided to related parties concerns Nordzucker Holding AG, Braunschweig, and net financial income/loss is from associated companies and joint ventures. 100

105 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes 41. Contingent liabilities The Group has the following contingent liabilities: As of February 29, 2008 property, plant and equipment amounting to TEUR 35,328 (86,050) has been pledged as collateral for liabilities. Contingent liabilities in TEUR 29/2/ /2/2007 Liabilities for securities Other financial obligations The Group s other financial obligations are as follows: Other financial obligations in TEUR 29/2/ /2/2007 Purchase commitments for property, plant and equipment 22,657 38,735 Operating leases/rent Other financial obligations 22,841 38,934 Total future payment obligations from rental and lease contracts are made up as follows as of February 29, 2008: Rental and leasing agreements Remaining term Remaining term Remaining term Total of up to one year term of 1-5 years of more than in TEUR 5 years Future payments for finance leases ,245 Future payments for operating leases Future payments from finance leases are made up as follows as of February 29, 2008: Finance lease in TEUR Remaining term Remaining term Remaining term Total of up to one year term of 1-5 years of more than 5 years Principal ,197 Interest Payment ,245 Nordzucker 2007/

106 43. Supervisory Board and Management Board In the financial year 2007/2008 the Supervisory Board was made up as follows: Representing the shareholders Dr Harald Isermeyer, Farmer, Vordorf, Chairman Jürgen Seidel, Engineer, Gronau, Deputy Chairman (until 6/7/2007) Helmut Meyer, Farmer, Betheln, Deputy Chairman (since 26/7/2007) Henning Hansen-Hogrefe, Farmer, Ingeleben Gerhard Borchert, Farmer, Brome Goetz von Engelbrechten, Farmer, Uelzen (until 6/7/2007) Albrecht Hertz-Eichenrode, Chairman of the Management Board of HANNOVER Finanz-Gruppe, Hanover Rainer Knackstedt, Farmer, Dedeleben Hans-Christian Koehler, Farmer, Barum Claus Lütje, Farmer, Rade (until 6/7/2007) Hans-Heinrich Prüße, Farmer, Lehrte-Ahlten Hans Jochen Bosse, Farmer, Ohrum (since 26/7/2007) Dr Karl-Heinz Engel, Managing Director of Hochwald Nahrungsmittel- Werke GmbH and Chairman of the Management Board of Erbeskopf Eifelperle e.g., Riol (since 26/7/2007) Dr Clemens Große-Frie, Chairman of the Management Board of AGRAVIS Raiffeisen AG, Telgte (since 26/7/2007) Dr Hans-Theo Jachmann, Managing Director of Syngenta Agro GmbH and Syngenta Germany GmbH, Limeshain-Himbach (since 26/7/2007) Jochen Johannes Juister, Farmer, Nordhastedt (since 26/7/2007) Andreas Scheffrahn, Farmer, Cramme (since 26/7/2007) Representing the employees Dieter Paschwik, MSR Master, Hohenhameln (since 26/7/2007) Deputy Chairman Rolf Huber-Frey, Businessman, Freiburg Wolfgang Wiesener, Metalworker, Uelzen Gerd von Glowczewski, Metalworker, Schladen (since 26/7/2007) Sigrun Krussmann, Chemical-technical Assistant, Lauenau (since 26/7/2007) Dr Andreas Schwarz, Project Manager E85, Mühl Rosin (since 26/7/2007) Dieter Woischke, Electrician, Algermissen (since 26/7/2007) Gunold Fischer, Vice Chairman of the trade union NGG, Hanover, Deputy Chairman (until 6/7/2007) Eckhard Bosse, EMSR Master, Leiferde (until 6/7/2007) Gunther Kenk, Trade Union Secretary for the state of Mecklenburg-Vorpommern of the trade union NGG, Ihlenfeld (until 6/7/2007) Gudrun König, Technical Clerk, Wolfenbüttel (until 6/7/2007) Jochen Steinhagen, Manager beet management Nord, Wieren (until 6/7/2007) Marina Strootmann, Chairperson of the Works Council, Nordzucker AG, Braunschweig, (from 9/3/2007 to 6/7/2007) Manfred Tessmann, Trade Union Secretary for the South-East Lower Saxony region of the trade union NNG, Vienenburg (until 6/7/2007) The members of the Management Board in the financial year 2007/2008 were as follows: Hans-Gerd Birlenberg, Braunschweig, Chairman, Management Board member responsible for Corporate Development, Corporate Council, Sales (Europe), Controlling, Finance and Accounting, Information Technology and Staff Development Dr Henrik Einfeld, Braunschweig, Management Board member responsible for Agriculture, Beet Procurement (Europe), International M+A, Risk Management, Internal Audit Günter Jakobiak, Hornburg, Management Board member responsible for Production (Europe), Logistics, Human Resources, Purchasing (Europe), Management Systems, Consumer Protection Dr Martin Wienkenhöver, Leverkusen, was appointed Management Board member responsible for Purchasing, Production, Quality Management and Logistics as of April 1, Remuneration report In the following section the principles of remuneration for members of the Management Board and Supervisory Board of Nordzucker AG are described and the amount of their remuneration disclosed, together with disclosures on shares held by members of the Management Board and Supervisory Board. 102

107 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Remuneration of the Management Board The Human Resources Committee of the Supervisory Board is responsible for setting the remuneration of members of the Management Board. The remuneration of members of the Management Board of Nordzucker AG is based on the size and business of the company, its economic and financial position and the level and structure of Management Board remuneration in comparable companies. Management Board remuneration is performance related and made up of two components in the financial year 2007/ 2008: a fixed salary and a variable bonus. There are no share-based remuneration components. The fixed remuneration is paid as a monthly salary. The variable component is set by the Human Resources Committee of the Supervisory Board based on the targets met by the Management Board and can be up to 40 per cent of total salary. Subject to the final approval of the Human Resources Committee, which had not yet met as of the reporting date, the bonuses will be set at 32%, based on performance in relation to the targets laid down at the beginning of the year. Total remuneration would then amount to TEUR 1,610 (1,243). This results in the following remuneration for individual members of the Management Board for the financial year 2007/ 2008: Remuneration of members of the Management Board Cash payments Pensions Other 1) Total Variable in EUR Salary annual bonus Hans-Gerd Birlenberg 402, , ,390 16, ,068 Günter Jakobiak 350, ,700 45,707 23, ,986 Dr Henrik Einfeld 300, ,170 24,770 23, ,118 Total 1,052, , ,867 63,142 1,860,172 1) Non-cash benefit for tax purposes, e.g. for company car, etc. Pension commitments are made in the form of benefit commitments, equivalent to between 19% and 33% of fixed salary, depending on length of service. Nordzucker AG has recognised provisions of TEUR 1,588 (1,563) for pension commitments to members of the Management Board. Former members of the Management Board received pension payments of TEUR 493. Nordzucker AG has recognised provisions of TEUR 6,338 (6,605) for pension commitments to former members of the Management Board. Members of the Management Board do not receive loans from the company. Nordzucker 2007/

108 44.2. Remuneration of the Supervisory Board The remuneration of the Supervisory Board was set at the Annual General Meeting following a proposal from the Management Board and Supervisory Board. It is governed by the company articles. The remuneration of the Supervisory Board is based on the size of the company, the duties and responsibilities of the members of the Supervisory Board and the economic situation of the company. The remuneration includes a dividend-related component in addition to a fixed payment. The Chairman and Deputy Chairman and the Chairman of the Audit and Finance Committee receive additional remuneration. The current rules on remuneration for the Supervisory Board are laid down in Sec. 14 of the company articles. According to these rules members of the Supervisory Board receive a fixed remuneration of EUR 13,000 and a dividend-related payment of EUR 500 for every per cent of dividend distributed above five per cent. Subject to approval at the Annual General Meeting the dividend for the financial year 2007/2008 will be EUR 0.48 (0.48) per share or (18.75) per cent. The Chairman of the Supervisory Board receives twice, both deputies and the Chairman of the Audit and Finance Committee one and a half times the fixed remuneration for a normal member. Members of the Supervisory Board are also reimbursed for all out of pocket expenses and value added taxes incurred in the course of their duties. Subject to the approval of the dividend proposal at the Annual General Meeting the following payments will be made for the financial year: Remuneration of the Supervisory Board Fixed Variable in EUR remuneration remuneration Total Dr Harald Isermeyer 26, , , Henning Hansen-Hogrefe 19, , , Jürgen Seidel 6, , , Albrecht Hertz-Eichenrode 13, , , Goetz von Engelbrechten 4, , , Gerhard Borchert 13, , , Rainer Knackstedt 13, , , Hans-Christian Koehler 13, , , Claus Lütje 4, , , Hans-Heinrich Prüße 13, , , Hans-Jochen Bosse 7, , , Dr Karl-Heinz Engel 7, , , Dr Clemens Große-Frie 7, , , Dr Hans-Theo Jachmann 7, , , Jochen Johannes Juister 7, , , Helmut Meyer 11, , , Andreas Scheffrahn 7, , , Gunold Fischer 6, , , Eckhard Bosse 4, , , Gudrun König 4, , , Rolf Huber-Frey 13, , , Gunther Kenk 4, , , Dieter Paschwitz 16, , , Jochen Steinhagen 4, , , Manfred Tessmann 4, , , Wolfgang Wiesener 13, , , Gerd von Glowczewski 7, , , Sigrun Krussmann 7, , , Dr Andreas Schwarz 7, , , Dieter Woischke 7, , , Marina Strootmann 4, , , Total 292, , , Members of the Supervisory Board are also reimbursed for travel expenses, meetings and other outof-pocket expenses and VAT in addition to the amounts listed. The total amount of these reimbursements was TEUR 182. Members of the Supervisory Board do not receive loans from the company. 104

109 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Shares held by members of the Management Board and Supervisory Board Members of the Management Board hold no shares. As of February 29, 2008 members of the Supervisory Board and related parties held under 1% of the issued share capital of Nordzucker AG. The shares bear no relation to the remuneration of the Supervisory Board Miscellaneous Board members of Nordzucker AG are indemnified by Nordzucker AG against third party liability as allowed by law. For this purpose the company has taken out collective third party liability insurance for members of the Boards of Nordzucker AG. It is renewed or extended annually. The insurance policy covers the personal liability of Board members for claims for damages arising in the course of their work. It includes an excess as recommended in 3.8 (2) of the German Code of Corporate Governance. 45. Statement on the German Corporate Governance Code The statement of compliance with the German Corporate Governance Code given by the Management Board and Supervisory Board has been revised and adapted to the latest version of the German Corporate Governance Code. The statement issued in April 2008 has been published on the Nordzucker web site under Dividend proposal The dividends that can be distributed to shareholders are defined in the German Stock Corporation Act (AktG) as the net balance sheet profit as determined under German commercial law and disclosed in the financial statements of Nordzucker AG. The annual financial statements for the financial year 2007/2008 show a net balance sheet profit of EUR 36,402, The Management Board proposes appropriating EUR 23,184, of the net balance sheet profit to be distributed as a dividend of EUR 0.48 per share with dividend entitlement; appropriating EUR 13,200, to retained earnings and to carry forward the remaining sum of EUR 18, to the next financial year. 47. Events after the reporting date In March 2008 a decision was taken to abandon sugar production in Hungary completely and to return the entire production quota. It was also decided to relinquish a further six per cent of the German sugar quota to the EU restructuring fund by March 31, The cessation of production in Hungary and return of additional production quotas in Germany will lead to a decline in sales of around six per cent in the current financial year. Braunschweig, Germany, April 25, 2008 Management Board Birlenberg Dr Einfeld Jakobiak Dr Wienkenhöver Nordzucker 2007/

110 Auditors' report We have given the following report on the consolidated financial statements and the Group management report: We have audited the consolidated financial statements of Nordzucker AG, Braunschweig, consisting of the balance sheet, income statement, cash flow statement, statement of changes in Group equity and notes to the accounts, together with the Group management report for the financial year from March 1, 2007 to February 29, The preparation of the consolidated financial statements and the Group management report in accordance with IFRS as applicable in the EU and the supplementary German commercial regulations applicable in accordance with Sec. 315a (1) HGB are the responsibility of the legal representatives of the company. Our responsibility is to express an opinion on the consolidated financial statements and the Group management report on the basis of our audit. We conducted our audit of the consolidated financial statements in accordance with Sec. 317 HGB and German generally accepted standards for the audit of financial statements as determined by the German Institute of Auditors (Institut der Wirtschaftsprüfer, IDW). Those standards require that we plan and conduct the audit such that misstatements and irregularities significantly affecting the presentation of the net assets, financial and earnings position in the consolidated financial statements, drawn up in accordance with accepted accounting principles, and in the Group management report are detected with reasonable certainty. Knowledge of the business activities and the economic and legal environment of the company and of expectations of possible misstatements are taken into account when determining audit procedures. The effectiveness of the accounting-based internal control system and the evidence provided for the disclosures in the accounts, the consolidated financial statements and the Group management report are assessed principally on a test basis within the framework of the audit. The audit includes an assessment of the financial statements of the companies included in the consolidated financial statements, the definition of the group of consolidated companies, the consolidation methods, the accounting principles applied and of significant estimates made by the company s legal representatives as well as an evaluation of the overall presentation of the consolidated financial statements and the Group management report. We believe that our audit provides a reasonable basis for our opinion. Our audit has not given rise to any objections. In our opinion, based on the findings of our audit, the consolidated financial statements comply with IFRS as applicable in the EU and the supplementary German commercial regulations applicable in accordance with Sec. 315a (1) HGB and give a true and fair view of the net assets, financial position and earnings of the Group in accordance with these regulations. The Group management report is in accordance with the consolidated financial statements and gives a fair view of the situation of the Group and of the risks and rewards of future development. Hanover, Germany, April 30, 2008 Ernst & Young AG Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft (Hentschel) Wirtschaftsprüfer [German Public Auditor] (Lüpkes) Wirtschaftsprüfer [German Public Auditor] 106

111 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Auditors' report Report of the Supervisory Board Report of the Supervisory Board of Nordzucker AG for the financial year 2007/2008 The Supervisory Board held a total of six meetings to discuss the commercial and strategic development of Nordzucker AG and to receive information on current events from the Management Board. All the Supervisory Board s discussions and decisions were aimed at protecting and increasing the company s assets. The members of the Supervisory Board monitored company management and advised the Management Board of Nordzucker AG. The Management Board provided the Supervisory Board with regular, prompt and comprehensive information on corporate and commercial policy, company strategy and management, risk management, the financial development of the company and transactions of fundamental importance. Furthermore, all matters requiring the authorisation of the Supervisory Board were presented to us for approval. As part of making the Group more European, the Supervisory Board supports the Management Board s goal of increasing Nordzucker AG s competitiveness by keeping logistics costs down for major European clients throughout the continent. In the financial year 2006/2007 the Supervisory Board approved the joint establishment of Eurosugar S.A.S. in Paris with the French sugar producer Cristal Union and the English trading house ED&F Man, and in October 2007 Eurosugar began operations. In November 2007 the Supervisory Board went on an excursion to Reims in France, to acquaint themselves with board members of Cristal Union and ED&F Man. In addition to specific aspects of the collaboration Eurosugar s shareholders discussed the future development of the European sugar market and the market for biofuels and biogenic fuels. One of the key topics was the commercial and legal environment for producing and marketing bioethanol. The members of the Supervisory Board kept the developments resulting from latest amendments to the European sugar regime in October 2007 and their effects on Nordzucker AG s business under permanent review. The changes created a right of initiative for beet farmers to return delivery rights for quota beet and established other incentives for sugar producers to return sugar quotas (1st wave of the quota return, applicable up to January 31, 2008). On the basis of these regulations the Management Board and Supervisory Board decided to return 165,178 tonnes of sugar quota for Germany to the restructuring fund and to close the factory in Güstrow in consequence. Over the whole financial year the Supervisory Board discussed acquisition and investment opportunities and carried out a fundamental review of the company s strategic orientation. Together with the Management Board the Supervisory Board Dr Harald Isermeyer Chairman of the Supervisory Board Nordzucker 2007/

112 is of the opinion that Nordzucker AG should concentrate on the core competencies Beet sugar in the European Union and Renewable resources, bioethanol. This orientation resulted in the construction of the bioethanol plant for fuel 21 GmbH & Co. KG in Klein Wanzleben, which has been producing bioethanol since December The Supervisory Board also passed a resolution on the construction of a pilot plant to generate biogas from beet in Groß Munzel, which is to test efficient production of biogas from beet. The project is being carried out with our partner E.ON Bioerdgas GmbH. The Supervisory Board agrees with the Management Board that the company must maintain a strict cost discipline and dealt with the capital expenditure programme of Nordzucker AG on a regular basis. At the meeting held on September 27, 2007 the Supervisory Board agreed not to renew the employment contract with Management Board member Günter Jakobiak, responsible for Supply Chain Management (purchasing, production, logistics) and Human Resources, beyond September The Supervisory Board appointed Dr Martin Wienkenhöver to replace him as of April Günter Jakobiak left the Management Board of Nordzucker AG with effect from April 30, The Supervisory Board expresses its thanks to Günter Jakobiak for his great commitment in the past. Events after the balance sheet date In view of the amounts of sugar quota returned in the first wave and the ongoing overproduction of sugar in Europe, the European Commission threatened all sugar producers with a quota reduction without compensation in 2010 and at the same time extended the option to return sugar quota on the same terms as for the first wave up to March 31, 2008 (2nd wave). The Management and Supervisory Boards therefore decided to return a further 63,022 tonnes of sugar quota to the restructuring fund. Supervisory Board committees The Supervisory Board Executive Committee met five times during the reporting period. The Executive Committee principally prepared the agendas for the subsequent ordinary and extraordinary meetings of the Supervisory Board. The Audit and Finance Committee met five times during the reporting period. Representatives of the auditors also took part in the meetings. Items on the agenda included the examination and approval of the financial statements and consolidated financial statements for the financial year 2006/2007, the proposal for the election of the auditors for the financial year 2007/ 2008, their remuneration, the scope of the audit, monitoring the auditors independence, an examination of the company s financial planning, various internal audits, the half-year financial statements for Nordzucker AG and the Nordzucker Group as of August 31, 2007, the earnings forecast for the financial year 2007/2008 and issues of corporate governance. The examination and approval of the financial statements and the consolidated financial statements for the past financial year as well as the proposal for electing the auditors for the financial year 2008/2009 were prepared in an additional meeting outside the period under review. 108

113 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Report of the Supervisory Board The Human Resources Committee met four times during the reporting period, mainly to deal with matters involving the Management Board. Particular attention was given to the appointment of the Board Member responsible for Supply Chain Management (purchasing, production, logistics). The variable remuneration of the Management Board for the financial year 2007/2008 was set at a meeting held outside the reporting period. Regular reports on the proceedings of committee meetings were made to the Supervisory Board. Annual financial statements The financial statements of Nordzucker AG for 2007/2008 and the management report together with the company accounts have been audited by Ernst & Young AG, Wirtschaftsprüfungsgesellschaft, Hanover, who have given an unqualified certificate of confirmation. This also applies to the consolidated financial statements in accordance with IFRS and the Group management report. Under Sec. 292a HGB (German Commercial Code) these IFRS consolidated financial statements exempt the company from the obligation to prepare consolidated financial statements in line with German law. The Management Board s proposal for appropriation of net profit and the auditors report have been presented to the Supervisory Board. They have been examined by the Finance and Audit Committee and by the Supervisory Board and discussed in the presence of the auditors. The Supervisory Board concurs with the result of the audit and concluded from its own examination that it has no objections to make. Personnel matters On March 9, 2007 and to replace Klaus Fentzahn, who took early retirement, Marina Strootmann was appointed by court order as an employee representative to the Supervisory Board as of the end of the Annual General Meeting on July 6, As Nordzucker AG permanently employs fewer than 2,000 staff in Germany, the company articles were amended at the Annual General Meeting held on July 6, 2007 so that the Supervisory Board is now made up in accordance with the Act on One Third Representation. This amendment to the composition of the Supervisory Board required the dissolution of the incumbent Supervisory Board and new elections. The workforce elected the employee representatives on June 19, Helmut Meyer and Hans-Jochen Bosse were elected to the Supervisory Board for the period up to the end of the Annual General Meeting which passes a resolution on discharging management for the financial year 2007/2008. Dr Harald Isermeyer, Albrecht Hertz-Eichenrode and Jochen Johannes Juister were also elected for the period up to the end of the Annual General Meeting which passes a resolution on discharging management for the financial year 2008/2009. Dr Karl-Heinz Engel, Dr Clemens Große-Frie and Henning Hansen-Hogrefe were elected for the period up to the end of the Annual General Meeting which passes a resolution on discharging management for the financial year 2009/2010. Gerhard Borchert, Dr Hans-Theo Jachmann and Hans-Heinrich Prüße were elected for the period up to the end of the Annual General Meeting which passes a resolution on discharging management for the financial year 2010/ Rainer Knackstedt, Hans-Christian Koehler and Andreas Scheffrahn were elected for the period up to the end of the Annual General Meeting which passes a resolution on discharging management for the financial year 2011/2012. At its constitutive meeting on July 26, 2007 the Supervisory Board elected Dr Harald Isermeyer as Chairman of the Supervisory Board of Nordzucker AG. The employee representative Dieter Paschwitz and the shareholder representative Helmut Meyer were elected as Deputy Chairmen. At its constitutive meeting the Supervisory Board also elected Gerhard Borchert, Helmut Meyer, Dieter Paschwitz, Hans- Heinrich Prüße and Wolfgang Wiesener as members of the Supervisory Board Executive Committee. Dieter Paschwitz, Hans-Heinrich Prüße and Wolfgang Wiesener were elected to the Human Resources Committee. Dr Harald Isermeyer is Chairman of the Supervisory Board Executive Committee and of the Human Resources Committee. The Supervisory Board also elected Henning-Hansen Hogrefe, Albrecht Hertz-Eichenrode, Hans-Christian Koehler and Rolf Huber- Frey to the Finance and Audit Committee, of which Henning Hansen-Hogrefe was elected Chaiman. The Supervisory Board thanks the Management Board and all the staff for their considerable personal commitment. Supervisory Board Braunschweig, Germany, May 21, 2008 Dr Harald Isermeyer Chairman of the Supervisory Board Nordzucker 2007/

114 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Corporate governance report Corporate governance report for the financial year 2007/2008 Corporate governance covers the system of managing and monitoring a company, including its organisational structure, its corporate policies and guidelines as well as the internal and external mechanisms of control and monitoring. Nordzucker AG attaches great importance to efficient corporate governance structures and expects board members to conduct themselves in accordance with good corporate governance, as this ensures that the management of the company is carried out responsibly and in line with long-term value creation. It fosters the confidence of shareholders, financial markets, business partners, staff and the general public in the management and control of the Nordzucker Group. Corporate governance is the foundation for the decision-making and control procedures at Nordzucker AG. Our activities are based on clearly defined guidelines. These guidelines postulate the systematic alignment of our actions with the interests and expectations of our shareholders, customers, business partners and staff. Our actions are based on the values of courage, focus on results, passion, sustainability, reliability and respect. Integrated processes and systems provide support for operating routines on the basis of these principles. Sustainably increasing enterprise value by steady growth and improving our market position are the defining criteria for the work of all our staff. Continuous improvement of all business processes by competent, well-managed staff earning performance-related pay secures the existence and the systematic long-term development of the company in an everchanging competitive environment. The Management Board is responsible for determining company policy. It sets corporate strategy, plans and approves company budgets, decides on the allocation of resources and monitors company development. The Management Board is also responsible for preparing the quarterly financial reports, the financial statements for Nordzucker AG and the consolidated financial statements. The Supervisory Board monitors and advises the Management Board on the management of the company. The Supervisory Board regularly discusses the course of business and company planning as well as corporate strategy and its implementation. It examines and approves the financial statements of Nordzucker AG and the consolidated financial statements for the Group, giving due regard to the auditors report and the results of the examination by the Audit Committee. Major decisions of the Management Board are subject to its approval. Up to the 2007 Annual General Meeting the Supervisory Board of Nordzucker AG was composed of twenty members, half appointed by the shareholders and half by the staff in accordance with the German Co-Determination Act. At the 2007 Annual General Meeting new elections were held for the Supervisory Board in accordance with the German Act on one third employee representation, so that the board now has 21 members. Two thirds of the Supervisory Board members represent the shareholders and one third represents the workforce. The remuneration of the Supervisory Board and company shares held by members of the Management and Supervisory Boards above 1% of issued shares of Nordzucker AG are dealt with in the notes to the consolidated financial statements (44.2 and 44.3). Neither members of the Management Board nor the Supervisory Board have bought or sold company shares for more than EUR 5,000 in the calendar year. 110

115 Declaration by Nordzucker AG on the German Corporate Governance Code in line with Sec. 161 German Stock Corporation Act The Management Board and Supervisory Board of Nordzucker AG, Braunschweig have examined the recommendations of the German Corporate Governance Code (version: June 14, 2007) in detail and agree with their provisions. Although the German Corporate Governance Code is not binding for Nordzucker AG, which is not publicly listed, the company has complied and continues to comply with the recommendations and suggestions it contains, with the following exceptions: 1. The company is currently reviewing whether to implement recommendation on sending the documents convening the Annual General Meeting electronically. A decision on making these documents available in electronic form is expected to be taken before the 2008 Annual General Meeting. 2. The recommendation on including candidates for Supervisory Board elections reflecting the company s foreign operations has hitherto been subordinated to the appropriate representation of individual beet growing areas within Germany. Braunschweig, Germany, April 2008 H.-G. Birlenberg Chairman of the Management Board Dr H. Isermeyer Chairman of the Supervisory Board Nordzucker 2007/

116 Glossary Finance Cash flow Net inflow of funds. Difference between receipts and spending expenses within one accounting period. For the sake of simplicity, the cash flow is determined on the basis of net income, plus non-spending expenses, in particular write-downs and changes in long-term provisions. The cash flow is available to the company for investment, repayment of liabilities and distribution of profits. Commodity funds Funds which invest primarily in different types of raw materials or commodities. Consolidation The Group accounts are drawn up as if all Group member companies formed one uniform company in law. All expenditures and earnings as well as all interim trade results and other transactions between the Group members are eliminated by way of set-off (expense and result as well as interim result consolidation). Stakes held in Group companies are set off against their equity capital (capital consolidation), and all intra-group receivables and liabilities are eliminated (debt consolidation), because such legal relationships do not exist within a legal entity. Summation and consolidation of the remaining items of the annual financial statements result in the consolidated balance sheet and the consolidated income statement. Declaration of compliance Annual declaration made and published by the Management and Supervisory Boards of listed companies in accordance with Sec. 161 German Stock Corporation Act (AktG), stating to which extent the company management complies with the recommendations of the Commission of the German Corporate Governance Code and which recommendations are not applied. Dividend The amount of a stock corporation s net income apportioned to each individual share. Dividends are either expressed as a percentage of the par value or as a currency amount per share (earnings per share). The Annual General Meeting votes on the distribution of the dividends. Dividends are paid out on an annual basis in Germany. EBIT (earnings before interest and taxes) This figure supplies information on the results of current operations. Differences in capitalisation are not accounted for, therefore general interest rate level and tax rates are not considered. EBT (earnings before taxes) The result before taxes, including stakes held by other shareholders. Equity method An accounting method in which shares in a company are initially recognised at cost and subsequently adjusted to reflect the shareholder s interest in the net assets of the investee company. Equity ratio A financial indicator describing the relationship between shareholders equity and total assets. Finance lease In contrast to an operating lease the lessor transfers the risk of the investment and thereby the economic ownership of the asset to the lessee. Forward swap An agreement between two parties e.g. to swap future interest rate payments at different fixed rates on an existing amount. German Corporate Governance Code Guidelines formulated in 2002 on the management and supervision of German companies listed on the stock exchange. The German Corporate Governance Code outlines nationally and internationally accepted standards of responsible business management, which primarily aim at transparency and clarity. The Code defines the responsibility of Management and Supervisory Boards and sets forth or makes recommendations on how to protect the rights of shareholders, how executive and supervisory bodies should be filled and how their members should be remunerated. Non-listed companies are also recommended to comply with the Corporate Governance Code. Hedge accounting under IAS 39 refers to the way in which two or more contracts (or financial instruments) between which hedging relationships exist are recognised in the balance sheet. This method differs from conventional accounting methods. IFRS (International Financial Reporting Standards) and IAS (International Accounting Standards) are accounting standards that render balance sheet and disclosure methods comparable on a global scale. These accounting standards have been compulsory for listed companies in Germany and throughout the EU since the beginning of Impairment test This test must be conducted regularly according to IFRS in order to verify the valuation of long-term assets. It may result in extraordinary depreciation. Interest rate cap Option contract in the form of contractually fixed individual agreements. Interest rate caps enable interest rate change risks to be restricted by setting a fixed maximum or minimum interest rate. Interest rate derivatives Used to hedge given interest rates for financing transactions and therefore reduce interest rate risk. Includes interest rate caps and interest rate swaps. Interest rate swap Contractual agreement on the swap of interest cash flows at specific points in time according to a basic notional principal. Interest rate swaps enable variable interest rate agreements to be converted to fixed interest rates. Joint venture A cooperation between companies in which a new, legally independent business unit is created in which the founding companies (two or more) invest capital. In addition to capital the founding companies generally contribute a significant amount of technology, intellectual property rights, technical or other expertise and operating equipment. Natural hedge approach Minimising currency risks by financing foreign currency investments in the same currency, for example. Net debt Financial liabilities minus cash and cash equivalents. Operating lease A lease is classed as an operating lease under IFRS if it does not transfer substantially all the risks and rewards incident to ownership. Registered share The subscribed share capital of Nordzucker AG is divided into registered shares with a nominal value of EUR 2.56 each. Return on equity A figure which shows the profitability of capital employed and is calculated by dividing net income for the year by shareholders equity. Return on revenues A financial indicator obtained by dividing net income for the year by revenues and enabling an analysis of a company s profitability. Revolving credit tranche A credit line with parameters such as amount, interest rate, use and other conditions which are guaranteed for a particular period. Spot market The term for a market on which an agreed transaction (consisting of delivery, acceptance and payment) is settled directly. Syndicated loan Lending by several banks (syndicate) on the basis of standardised contract documents and identical terms and conditions. Total profitability This indicator is calculated by dividing EBITDA (earnings before interest, taxes, depreciation and amortisation) by total output (revenues plus changes in inventories). Volatile ( unpredictable, liable to change ) A market is volatile if it is subject to major price fluctuations. Volatility is the statistical means of measuring market fluctuations. 112

117 Letter from the Management Board Growth in cooperation Management report Consolidated financial statements Notes Glossary Sugar and bioethanol Bioethanol (agricultural alcohol) Ethanol produced from biomass (renewable substances containing carbon). Starch (e.g. from wheat or maize) is broken down by enzymes into glucose. Yeast is then added and the glucose is fermented to create ethanol. When sugar beet is used to produce ethanol, the raw juice or thick juice created as a by-product of sugar extraction is fermented directly. Unlike fossil fuels, bioethanol is CO 2 -neutral and has long-term economic benefits. In Germany, the Biofuel Quota Act has been in force since 2007, which stipulates the amount of bioethanol to be blended with petrol. Bio-natural gas A processed biogas produced by fermenting biomass, which can also include sugar beet. Brown sugar A general term for all types of sugar which are brown in colour. Brown sugar can be produced by a variety of different processes. CO 2 (carbon dioxide, greenhouse gas ) Chemical compound consisting of carbon and oxygen which, like carbon monoxide, is a carbon oxide. This colourless and odourless gas is a natural component of air. It is created when substances containing carbon are burnt, and during cellular respiration. Plants and some bacteria convert CO 2 into biomass. Distillation (Latin: destillare to drop away ) A thermal process used to separate a liquid mixture into various mutually soluble substances, e.g. by burning alcohol. Repeated distillation increases the purity of the resulting distillate. E 85 Fuel consisting of 85 per cent water-free bioethanol and 15 per cent conventional petrol. As a pure fuel E 85 is exempt from the petroleum tax in Germany, and is being offered by a growing number of petrol stations. Fermentation (lat. fermentum: yeast ) The conversion of biological materials with the aid of bacteria, fungal or cell cultures or, alternatively, via the addition of enzymes (ferments). Originally, the term stood for the biological reaction when air was excluded. Glucose is a simple sugar which circulates in the blood. Isoglucose is a liquid sweetener generally made of starch which has been turned into glucose. The starch is in turn made from cereals, primarily from maize. Molasses Syrupy by-product of sugar production. Used to manufacture yeasts and animal feed. Pellets By-product of sugar production. These extracted, dried sugar beet pellets are sold molassed or unmolassed as animal feed. Pressed chippings Used as animal fodder, these consist of pressed beet chippings produced when making sugar from sugar beet. Raw juice Sugary juice extracted from sugar beet which can be processed to make sugar or bioethanol. Refining Used in a general sense to describe a process of cleaning or purifying raw materials. For sugar this means bleaching brown raw sugar (from sugar cane or sugar beet) by a (repeated) series of different processes. Thick juice Concentrated, purified sugar juice containing some 70 to 75 per cent solid material. Thick juice is produced at the end of the steam dryer unit before the sugar undergoes the actual crystallisation process in the sugar factory s juice boilers. Vinasse is a product of raw/thick juice and molasses which occurs in bioethanol production. Suitable for feeding to cows, sheep and pigs. White sugar is normal household sugar and is made from raw sugar. Sugar industry A/B quota Sugar production volume assigned by the EU until 2006 with limited price and full revenues guarantees. When the new EU market regulation period for sugar began on July 1, 2006, the A and B quotas were combined to create a single sugar production quota. ACP countries (Africa, Caribbean and Pacific) This encompasses 77 states, most of them former French or British colonies. The EU has granted these countries preferential access to the European market and duty-free imports of 1.3 million tonnes of raw sugar since 1975 by means of the Cotonou Agreement. As of 2008, the EU wants to replace this treaty with Economic Partnership Agreements (EPA) with the ACP countries. In terms of sugar, this should place the countries on an equal footing with the least developed countries (LDC). C-sugar Term used until 2006 to denote sugar produced in excess of the A/B quota. Until the WTO panel came into effect on May 22, 2006, C-sugar was sold on the world market. Doha round A set of resolutions drawn up by the trade and industry ministers of the WTO member states in 2001 at the fourth WTO Ministerial Conference in Doha (the capital of Qatar), which was to be passed by The negotiations centred on liberalising agricultural trade, improving market access for developing countries, and aspects of protecting intellectual property. After the 2003 WTO Ministerial Conference in Cancun failed to reach an agreement, the negotiations were broken off. They were resumed in July 2004 and once again called off at the end of July 2006 by WTO Director General Pascal Lamy after no conclusion was reached. EU production quota The sugar market regime stipulates how much sugar, isoglucose and inulin syrup each EU member state can produce. The member states share this quantity among their sugar producers. Production quotas are designed to limit the quantity produced in the EU and prevent surpluses. Export licences The European Commission controls the export of EU quota sugar and compliance with the value and volume stipulated by WTO export restrictions by issuing export licences. Industry sugar According to the sugar market regime, all sugar which exceeds the production quota and is largely intended for the production of certain non-food products. These include, for example, bioethanol, alcohol, yeast, syrups for spreading and certain pharmaceutical and chemical products. Intervention In order to support the market equilibrium in the EU, certain agricultural products can be sold to state bodies at fixed prices. The Federal Agency for Agriculture and Food (BLE) acts as the intervention agency for Germany. Sugar is eligible for intervention up to and including 2009/2010. Kyoto Protocol At the Third Conference of the Parties in the Japanese city of Kyoto in 1997, a protocol was adopted for a framework convention on climate change. This laid down legally binding limits for greenhouse gas emissions for industrial countries for the period 2008 to The Kyoto Protocol came into effect for 163 signatory countries on February 16, LDC/EBA (Least developed countries/everything but arms) Both terms relate to an EU resolution of 2001 according to which the 50 least developed countries in the world may import any goods except arms into the EU free of any duty. Sugar falls under a special transitional arrangement until As of July 1, 2009, sugar can also be imported into the EU free of duty and with no restriction of quantities. Market withdrawal An option which can be exercised by the EU. This involves temporarily withdrawing a quantity of sugar from the market in order to maintain a structural market equilibrium at a price which resembles the fixed reference price stipulated in the sugar market regime. Production levy Levy paid by beet farmers and sugar producers to finance the export of quota sugar which cannot be marketed in the EU. Nordzucker 2007/

118 Prohibitive duties The term describes import duties set prohibitively high to discourage imports. Reference price The reference price stipulated in the sugar market regime for EU quota sugar serves as a basis for minimum beet prices. In this way, the European Commission also provides orientation for pricing sugar of the standard Category II supplied loose ex works in the new market regulation period beginning July 1, Market prices for sugar which are significantly above or below the EU reference price may trigger market regulation measures. Restructuring levy Beginning in the 2006/2007 marketing year, all sugar producers in the EU are obliged to pay a levy to the restructuring scheme for sugar based on their production quota. The levy is payable regardless of the amount of sugar actually produced Euro was payable per tonne of production quota for the 2006/2007 sugar marketing year. In 2007/2008, the restructuring levy increased to Euro Euro is payable to the scheme for the last time in 2008/2009. Restructuring scheme for the sugar industry This is at the heart of the 2006 sugar market regime reform. All EU sugar producers pay into the scheme for three years. It is used to compensate those EU companies who voluntarily surrender some of their production quota. The aim of the restructuring scheme for the sugar industry is to maintain beet cultivation in the competitive regions of the EU. Until now, quota returns have remained below expectations. To ensure that the reform is a success, the EU has announced that prices will be corrected. Sugar market regime A common market organisation for sugar founded in 1968 (active in the EEC/EC/EU) which regulates prices for sugar and sugar beet, maximum production quantities for sugar, and import safeguards. The previous regulation (EC) No. 1260/2001 was replaced on July 1, 2006 by regulation (EC) No. 318/2006, which was passed by the ministers of agriculture of the EU member states on February 20, Sugar marketing year The reform also heralds a change in the marketing year used by the common market organisation for EU sugar. In the future, the year will begin on October 1 and end on September 30. This excludes the 2006/2007 marketing year, which begins on July 1, 2006 and ends on September 30, Third countries In the Annual Report the term is used for countries which do not belong to the EU. WTO (World Trade Organisation) Multinational organisation located in Geneva, in which 150 member states negotiate world trade liberalisation. WTO panel Body set up by the WTO for the settlement of disputes. Member states may commission the panel under the dispute resolution mechanism to examine whether obligations under the WTO agreements have been violated. Certification, quality assurance and consumer protection DIN EN ISO 9001 This standard is part of the EN ISO 9000 series, which documents the principles of quality management activities. EN ISO 9001 deals in particular with requirements of quality management systems for which organisations must show that they are capable of supplying products which conform to customer and regulatory demands. DIN EN ISO This internationally valid standard lays down globally acknowledged specifications for environmental management. DIN EN ISO Covers rules for internationally accepted food safety management standards. EMAS II (Eco-Management and Audit Scheme) Voluntary system used by the EU as an environmental management instrument and to promote environmental action. GMP B2 (Good Manufacturing Practice B2) Dutch standard of quality control for animal feed from non-resident suppliers. IFS 4 Standard (International Food Standard) Used for the assessment of suppliers of private brands, this standard is a means of safeguarding food safety and consumer protection. Q&S Standard German feed standard established by Q&S-GmbH, Bonn, Germany to guarantee feed quality. SweetFamily SweetFamily is the Nordzucker Group s international umbrella brand. Beet sugar products for end consumers, bakers and the food industry have been marketed in Germany, Poland, Slovakia and Hungary under the SweetFamily brand since November

119 Important dates Financial calendar Annual General Meetings July 1, a.m. Union-Zucker Südhannover GmbH, Berghölzchen Hildesheim July 9, a.m. Nordharzer Zucker-AG, Stadthalle Braunschweig July 10, a.m. Nordzucker Holding AG, Stadthalle Braunschweig July 11, a.m. Nordzucker AG, Stadthalle Braunschweig July 23, 2008 Quarterly Report, 1st Quarter 2008/2009 Online publications The following publications can be downloaded from Annual Report Declaration of compliance Sustainability report

120 Nordzucker AG Küchenstrasse Braunschweig Germany Telephone: +49 (0) Fax: +49 (0) info@nordzucker.de Shares register Wilhelm Just Telephone: +49 (0) aktien@nordzucker.de Investor relations Bianca Deppe-Leickel Telephone: +49 (0) ir@nordzucker.de Public relations Tanja Schneider-Diehl Telephone: +49 (0) pr@nordzucker.de Printed copies of this Annual Report for the Nordzucker Group are also available in German. Alternatively, the report can be downloaded in German or English from as a PDF.