Background
Corporate Management /

Our activities are
centred on the potato

Risk management

Our activities are centred on the potato, which makes HZPC a coherent and standardised company with a low risk profile. Moreover, eighty percent of the purchases stem from variable purchasing contracts, which ensures that HZPC’s purchasing and sales positions are relatively risk-free. The biggest risks for HZPC’s business operations are the following.

The seed potato market is a global market. Our sales can be influenced by phytosanitary obstacles or political measures. These real risks are, however, spread over the 85 countries HZPC deals with, and that means that we are not too dependent on any one country.

Disease risk plays an important role in the cultivation of seed potatoes. Quarantine diseases in particular have a large influence on the availability of seed potatoes. On the one hand, the total acreage is spread over the various growing areas, and on the other, we have prevention systems in place that sufficiently limit the spreading of any possible infections.

The discovery of a quarantine disease at our breeding station would seriously delay the development of new varieties. To reduce that risk, the genetic material of many potential and all commercial varieties are multiplied and stored at several different locations.

Properly functioning ICT systems are essential for our company. This means more than just the continuity of data processing. Communications with most of our business relations are also increasingly being automated, because of which the complexity of and the dependence on systems increases.

Our systems are mostly developed by our own staff. On the one hand this means that we have expert in-house knowledge and experience, but on the other it makes us greatly dependent on a small number of staff members. We have our own backup centre where transaction data and other information is updated on a weekly basis. To safeguard our knowledge sufficiently, we also use permanent contacts outside the organisation. Moreover, the correlations between processes and systems have been accurately recorded in an extensive process description.

We are running a limited foreign exchange risk. The export of seed and consumption potatoes is mostly handled in euros, which reduces the transaction risk. However, the company also invoices licence fees in South African Rands. For this currency we are vulnerable to translation risk. The participating interests in Argentina, Canada, Poland, Great Britain and Sweden are all valued in local currencies. Because of the financial scopes of these companies, we consider these risks to be limited.

Great Britain also applies its Bribery Act outside its national borders. Subsequently, this Act also applies to HZPC's Dutch and international holdings and activities. The British Act in question also holds HZPC responsible for dealings by any third parties that HZPC does business with, which are mostly our agents.

The British Bribery Act is becoming increasingly comprehensive and strict, and can lead to considerable financial penalties. Even worse can be the collateral reputation damage, which can seriously endanger the company’s business operations.

For this reason, a Code of Business Conduct has been drawn up this year to meet the demands of the British law. This Code of Conduct will be introduced into the entire company in the coming year. Managers will instruct their staff. The Board has appointed a compliance officer who must regularly check that the Code of Conduct is being complied with.

We often deliver large quantities of seed potatoes to our customers within a short period of time. Although we regularly use safeguards such as advance payments, letters of credit and bank guarantees, the operating result is susceptible to credit risks. Because of the ongoing worldwide crisis, this risk has considerably increased. The financial position of various buyers is less certain and more difficult to assess. We have not taken out credit insurance. In view of our delivery pattern, such an insurance would currently provide insufficient cover compared to the premiums that have to be paid. For the coming period, a higher payment risk will continue to apply.

In the past financial year, HZPC made payment arrangements with an Egyptian customer to offset the total debt outstanding from this customer. The payment arrangements were fulfilled according to the schedule during the 2013/2014 financial year. In this market, as well, HZPC is conscientious in its dealings.

Corporate Governance

HZPC Holland B.V. is a two-tier board company with a Management Board and an independent Supervisory Board. The Supervisory Board appoints the members of the Management Board.

HZPC has a three man management team consisting of Gerard Backx (CEO), Herman D. Heijtmeijer (acting CFO) and Herman Verveld (Commercial Director). Herman D. Heijtmeijer has replaced Feico Tijmstra who stepped down from the Board on 1 October 2014.

The Management Board is responsible for the management of the company, the HRM strategy and the deployment of manpower, and the utilisation of resources. The Management Board keeps the Supervisory Board informed of the day-to-day affairs, consult with the Board about all important matters, and present important resolutions to the Board for approval.

The Supervisory Board supervises the policy of the Management Board and the general course of business affairs and advises the Management Board. The members of the Supervisory Board are appointed by the General Meeting of Shareholders, on the recommendation of the Supervisory Board.

The General Meeting of Shareholders is convened by the Board of the “Vereniging HZPC” (HZPC Association), which holds one hundred percent of the shares. The powers of the General Meeting of Shareholders have been laid down in the Articles of Association of the Company. In addition, the Board has to submit certain resolutions to the GMS for approval. This might relate to resolutions concerning investments in excess of 1 million euros, a proposed merger, or proposed resolutions to establish, alienate or participate in other companies.

The “Vereniging HZPC” (HZPC Association) has certified all the shares. Certificate holders can become members of the Association. The General Meeting elects and appoints the Board. The Board of the Association needs the approval of the Members for any proposed resolution in respect of the alienation of shares for the entering into a merger by the company.

Report of the supervisory board

It is our pleasure to present the 2013/2014 report of the Supervisory Board. The purpose of the report is to give you an overview of the activities that we have undertaken and our method of operation.

The year 2013/14 was characterised by some challenging developments. We are pleased that the company has reacted professionally and energetically and taken all the necessary steps in those areas where we have for many years developed business and growth for sustainable growth factors. The economic and financial developments have led to a joint-venture agreement with Mahindra in India, and to the decision to reorganise our trade in Sweden. In the market, the company has traded in response to the challenging market developments and has learned from the lessons of recent years in respect of reported credit risks and exposure.

Meetings and business topics

Within the framework of corporate governance, the tasks and responsibilities of both the Supervisory Board and the Management Board have been evaluated and reported on by an external expert. The conclusions in this report have not led to any significant changes in the management of the company. However, a few points for attention were mentioned in regard to the management. The composition of the Supervisory Board did not change during the year under review.

During this financial year, the Supervisory Board held seven meetings with the Management Board. On two occasions, some members elected to be present at the meeting via a telephone link.

All standard items on the agenda for these meetings were discussed and, if appropriate, resolutions adopted. Items included the development of the financial performance, dealing with current business, and the revision and progress of the implementation of the company’s strategy. The revision of the strategy with regard to the composition of the holdings, of the business activities and of the portfolio in respect of the strategy are the most important priorities in such an exercise. Following a proposal from the Management Board, it was decided to reorganise the trade in Sweden. As a consequence, the participating interest in Sweden will be dissolved in the following financial year. In addition to these standard agenda items, the Supervisory Board and the Management Board discussed subjects such as the objectives for 2015, long-term developments in the R&D domain, the proposal for mergers and acquisitions and the market dynamics as a result of geopolitical developments.

Based on the medium-term revision of this growth strategy, it was unanimously concluded that the principles of this strategy have remained in force and are still convincing. The adjustment in the financial objectives based on the altered HZPC portfolio and the new market reality will not cause any delays in the implementation of the business strategy.

The Supervisory Board had long talks with the Management Board about the long-term principles for the future growth that is expected from the strengthening of our worldwide presence and of the important R&D developments in terms of the hybridisation of the potato. The Supervisory Board is pleased to note that the Management Board has decided to obtain advice from external professionals in both these domains, so as to be able to determine any possible effects on both business strategy and business structure. The Supervisory Board has been sufficiently informed by the Management Board about all findings and consultations.

Financial results and audits

In the opinion of the Supervisory Board, HZPC has maintained the good results in this financial year. Despite some challenging geopolitical and economic circumstances in the markets in which we operate, income has increased slightly and, all in all, the margins remained relatively stable. In order to increase our worldwide presence – an important aspect of our business strategy – HZPC concluded a joint-venture agreement with Mahindra Agribusiness (part of Mahindra & Mahinda Ltd.). This joint venture will become fully operational in the following financial year. Meanwhile, HZPC will continue its strategy of developing new potato varieties and new markets to complement the already existing ones.

On several occasions, the delegated member of the Supervisory Board for financial affairs consulted with the CFO of HZPC and, in addition to these conversations, conducted telephone conversations with him to discuss the financial developments and the interim financial figures. The Supervisory Board also held meetings with the KPMG auditor. Agenda items were: the provisional results, the financial statements and the (interim) management letter.

The Chairman of the Supervisory Board held regular consultations with the CEO. In addition, members of the Supervisory Board, the auditor, the CFO and the entire Management team attended several meetings during the year. When this was considered relevant, managers responsible for commerce, countries, finances and auditing were invited. Every year, the Supervisory Board consults with a delegation from the Dutch Works Council.

By holding these meetings, the Supervisory Board and the Board of Directors have an up-to-date picture of the progress of important projects, of the discussion points that came up during the auditor’s checks in the previous years, and of the risks that became apparent during the year.

On the balance sheet date, HZPC had a net debt to operational cash flow ratio of 1.4. This makes the balance solid and the generation of a stable cash flow provides a solid basis for organic growth as well as for the acquisitions. Moreover, the seed potato prices over the year continued at a competitive level.

Changes in the Board of Directors

There was one change in the Board of Directors uring this financial year. Our CFO Mr F.L. Tijmstra has stepped down. We wish to thank him for his services to HZPC in the past three years.

Finally

On behalf of the Supervisory Board, we would like to thank all the HZPC employees over the whole world for their devotion and for their hard work for the Company in the past financial year.

Joure, 16 October 2014

Supervisory Board,
B. Visser, chairman
E. Kraaijenzank
A.T. Oosterhof
W. Sinnema
M.J. Ubbens

Other chapters

Our Annual Report read this chapter Overview and Strategy read this chapter Management (operational) read this chapter Annual Account of HZPC Holland B.V. Table of content of Annual Account read this chapter Consolidated balance sheet read this chapter Consolidated profit and loss account read this chapter Consolidated cash-flow statement read this chapter Notes to the consolidated financial statements read this chapter Notes to the consolidated balance sheet read this chapter Notes to the consolidated profit and loss account read this chapter Parent company balance sheet read this chapter Parent company profit and loss account read this chapter Notes to the parent company financial statements read this chapter Other information read this chapter

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