Royal Cosun reports EUR 53 million operating profit

29/03/06 Royal Cosun, a manufacturer of natural foodstuffs and ingredients, realised a consolidated net turnover of EUR 1,339 million in 2005. This slight increase in comparison with 2004 was attributable chiefly to the contribution from Nedalco, which was consolidated in full for the first time in 2005.

Operating profit before goodwill amortisation and incidental items increased from EUR 51 million in 2004 to EUR 61 million in 2005. Operating profit including incidental items came to EUR 53 million and the result for the year to EUR 24 million.

The basic ingredients group turned in higher results despite the less favourable development of the sugar market, where the supply of sugar in Europe was higher than demand. Suiker Unie reported a good result, thanks chiefly to efficiency improvements. Beet processing at one of the three sugar factories was terminated at the end of 2004. This led to substantial cost reductions and simultaneously increased productivity.

Despite growth in inulin sales, Sensus achieved a slightly weaker result owing to low fructose prices. Nedalco reported higher turnover, partly as a result of a modest recovery in selling prices in the alcohol market. The substantial volume of alcohol imported into the European market declined and the growth of the bio-ethanol market also had a positive impact on alcohol prices.

In potato products (Aviko) the result was disappointing. The combination of overcapacity in pre-fried products and a further decline in west European consumption exerted strong pressure on prices. As a result, the increase in the cost of raw materials in the second half of the year could not be passed on in full to customers.
 
The compound ingredients activities turned in the same result as in 2004. In the European fine bakery market, Unifine Food & Bake Ingredients' improvement measures led to a wider margin and growth in central and eastern Europe. The American activities increased their turnover and results. Unifine Sauces & Spices' turnover was also higher; the result was the same as in 2004.

SVZ's sales volume grew above the market average in all regions. Its turnover, however, declined, chiefly on account of weaker prices. The result excluding exceptional items was lower.

Royal Cosun noted that the new regime for the EU sugar market , which will come into force in July 2006, will have a negative impact on the income of beet growers (members of the cooperative) and on the profitability of the sugar industry. Cosun believes there are still opportunities for beet and sugar production in the Netherlands but the production chain's overall cost base will have to be cut further, at both the growers and the processors.

Cosun has been preparing for these developments in recent years by seeking efficiency gains in its factories and by diversifying its activities. Cosun's two sugar factories rank among the most efficient in Europe.

In the light of these developments, in 2005 Cosun reviewed the group strategy.
The current non-sugar activities will be unable to absorb all the decline in profit of the sugar activities in the short term. Cosun has therefore tightened up its strategy by focusing on: even greater priority for cost control and maintaining the market position, especially in sugar;

• growth in activities and products that have the greatest potential to make a healthy contribution to profits, such as potato products, bio-ethanol and Verifruit;

• a stronger market position and higher profits at Sensus, Unifine Food & Bake Ingredients, Unifine Sauces & Spices and SVZ's "classic" products.

Cosun will realise this growth by consolidating its market position and through acquisition and organic growth. It will also study the growth potential of non-food products that are based on natural raw materials.

Cosun said that a great deal of turbulence is expected on the sugar market in the first years of the new market organisation. The success of the European quota purchase scheme will also determine the pressure exerted on prices. EU levies will be very high in 2006 and subsequent years. As a result of this and the declassification in 2006, sugar results will be lower.

The market for pre-fried potato products will remain difficult but the cost saving measures and the efficiency improvements brought about by targeted investments will make a positive contribution to the result. Cosun also expects its other activities to make a higher contribution to results in 2006.

In addition, the disposal of the American subsidiary Custom Industries will produce a non-recurring gain. The result as a whole for 2006 is therefore expected to be higher than that for 2005.