Background
Governance, laws and regulations

Report of the Supervisory Board

The year 2014/15 has been one of organizational transition for the company and a year of continuous advancement in pursuance of the company’s strategy. Despite the challenging market situations, also influenced by global political and macro-economic circumstances, the company has sought to build on successes to date. It is therefore with pleasure that we present our review of the management of the company.

Meetings

The Supervisory Board held seven meetings during 2014/15. These plenary sessions were held with the Executive Board for all or parts of these meetings. When the agenda and topics under discussion required it, meetings were held together with the board members of the ‘Vereniging HZPC’. This occurred on three occasions. The Chairman of the Supervisory Board prepared all meetings with the CEO and discussed with him matters such as the agenda, minutes and planning of meetings. The Supervisory Board is confident that all members made adequate time available to give sufficient attention to HZPC. Similar to previous years, all members of the Supervisory Board were given the opportunity to discuss and raise any agenda items with the Chairman. All members were present at all meetings. 

Supervisory Board activities

The Supervisory Board is in charge of supervising and advising the Executive Board in its setting and achieving of the company’s strategy, policies and objectives. In 2014/15, an important part of its activities was focused on operational performance and strategy, developing HZPC’s business portfolio for the future, and monitoring of the Executive Board and risk management.

In HZPC, a two-tier corporate structure under Dutch law, the Supervisory Board is a separate body operating fully independently of the Executive Board. Members of the Supervisory Board are appointed and reappointed by the Shareholders; that is, by the ‘Vereniging HZPC’. During the course of 2015, the Supervisory Board considered and recommended to the Shareholders the reappointment of the chairman, Mr. B. Visser (for his third term) and Mr. E. Kraaijenzank (for his second term). Their reappointments were felt to be prudent. 

One of the main activities of the Supervisory Board during 2014/15 was to manage and lead the discussions on a specific strategic research project. Time was devoted to discussing the company’s strategic options. The Executive Board was supported by external advisors with identifying the options, planning and possible risk scenarios for this important strategic project. The Supervisory Board, in full transparency and agreement with the Shareholders, decided to approve the plans of the Executive Board to proceed with this research project. 

During several meetings, the Supervisory Board spent time on the company’s organisational structure. The current structure, both management and legal, has been reviewed, in line with the company’s strategy. Based on proposals made by the Executive Board, the Supervisory Board approved changing both the company’s top management structure and the legal structure. The change entails a split of the business into two business areas, as well as a new top structure, forming a group executive team consisting of the three board members, the director for Europe and the Research & Development director. The organisational changes will be carried out during the financial year 2015/16. Time was also spent on the performance review of the company’s sectors, businesses and functional strategies which were presented by the Executive Board during quarterly reviews. Special attention was also given to innovation and new activities. On several occasions, the Supervisory Board was given practical insights into the company’s strategic innovation projects first-hand by various different business managers, in order to maintain a growing understanding of these activities. In conclusion, the Supervisory Board is pleased to be able to say they were adequately informed by the Executive Board of all findings and during all consultations. 

Financial results

At EUR 241.6 million, net sales from continuing operations in 2014/15 were 14.5 percent lower than in 2013/14 when they reached EUR 282.7 million. Volume development accounted for a 5.3 percent decrease in net sales. On average, selling prices were 9.2 percent lower than in 2013/14. Exchange rate fluctuations had on balance no impact.

Operating profit from continuing operations decreased by EUR 4.7 million (51 percent), from EUR 9.2 million in 2013/14 to EUR 4.5 million in 2014/15.

Operating profit from continuing operations before depreciation and amortization (before exceptional items) decreased by EUR 5.7 million (40 percent), from EUR 14.2 million in 2013/14 to EUR 8.5 million in 2014/15. The EBITDA margin (operating profit before depreciation and amortization as a percentage of net sales) decreased to 3.5 percent.

Taking into account some challenging geo-political and economic circumstances in the markets where the company operates, revenue decreased slightly and due to lower sales of seed potatoes, margins also decreased. In order to increase global presence, which is part of the company strategy, the company signed a joint-venture contract with Mahindra-Mahindra Ltd. in India in April 2014. This joint-venture was fully operational during this financial year. In its first year, this new joint-venture performed above our business expectations. 

With a net debt to EBITDA ratio at year-end of 2.5 HZPC’s balance sheet is strong, and our steady cashflow generation provides a solid foundation for growth organically as well through acquisitions. Our solvency ratio remains strong at 46.8 percent (year 2013/14 43.9 percent). In the meantime, the company will pursue the strategy to develop new potato varieties and new markets for existing ones. In the opinion of the Supervisory Board, the company continued to do well during this year.

The Supervisory Board recommends that the shareholders adopt the financial statements as presented by the Board of Management and approve the allocation of EUR 2.9 million of dividend. This is consistent with the company’s aim to provide a stable dividend. This means, based on the numbers of outstanding certificates, the dividend pay-out per certificate will be EUR 3.75, which will be paid out on 16 October 2015.

Governance, risk management, audit and internal control systems

During the financial year the Supervisory Board has been adequately informed regarding the company’s governance, risk management, audit and internal control systems. The processes, outcomes and management’s response were fully discussed and considered adequate. The Supervisory Board is pleased to see the company has also improved in this compliance reporting process. Together with the delegated responsible member of the Supervisory Board, the risk management and control processes, as well as outcomes and disclosures, were discussed with the Group’s external auditor. The Executive Board participated in these meetings. On fulfilling its overseeing responsibilities in relation to risk management and internal control arrangements, the Supervisory Board is satisfied with the outcomes and progress made for improvements during the year. The Supervisory Board is in particular pleased with the advancement of implementing a company-wide Code of Conduct.

In the light of the market circumstances in Europe and the impact these had on the company’s financial results, the Supervisory Board also evaluated the commerce policies and contingency planning made at the start of the season. In the view of the Supervisory Board, the company’s management responded appropriately to the challenges of the sales season. Furthermore, the Supervisory Board spent time discussing the company’s treasury planning, tax strategy, information management strategy and internal control assessments. In addition the Supervisory Board also reviewed the annual contingency plan, including investments and financing. In reviewing the Group’s financing, and in the light of the need not to be too dependent on growers’ deposits, the Supervisory Board decided to maintain the standby facility of EUR 15 million with the company’s new bankers, ING. 

KPMG Accountants, HZPC’s external auditor, reported in depth to the Supervisory Board on the agreed scope of the audit and the outcome. HZPC´s financial statements, the report and management letter of the external auditor were discussed with the auditor in the presence of the CEO and CFO. 

The auditor has examined the annual accounts for 2014/15 and issued an unqualified opinion on them (see the Independent Auditor’s Report on the Financial Statements in section other information of this report). The Supervisory Board is of the opinion that the findings of the external auditor shows progressive development of internal quality standards and improved governance quality standards.

A word of thanks

In the current turbulent trade season 2014/15 a huge amount of commitment, resourcefulness and flexibility was asked of all employees in order to achieve another successful year for HZPC. All members of the Supervisory Board would like to express their gratitude to all employees around the world for their dedication and hard work during 2014/15.

 

On behalf of the Supervisory Board,

Biense Visser, Chairman

Joure, October 8, 2015

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