Background
Overview and Strategy /

Within HZPC everyone has a passion for potatoes

Vision and Mission

HZPC is an international leader in potato breeding, and is an international player in the world potato market. HZPC is an innovative, market-oriented company that develops new varieties and markets seed potatoes all over the world that have been cultivated by its affiliated growers. The HZPC varieties are grown all over the world and we sell seed to 85 different countries. HZPC is proud of its growers: they deliver seed potatoes of the highest quality. Their businesses are inextricably bound up with ours.

HZPC shares the vision that the world population will increase rapidly before levelling off at around nine billion. What we see happening is that the world population is urbanising and that there is a rapid increase in the number of emerging economies. And particularly in those countries, the upcoming middle classes will want to develop and assert their interests. HZPC understands that the world today makes different demands on food. This has a bearing on sustainability and regionally varying requirements in respect of nutritional value, taste and external product qualities.

In view of current developments, HZPC's mission as a company, and what also serves as the deeper motive of our people is that we – as potato variety breeders, seed potato growers and seed potato traders –  facilitate the production and supply of sufficient, high-quality, accessible and reliable food for the present and future world population.

At HZPC, everyone has a passion for potatoes. The potato makes it possible to produce high-quality food in a short period of time with relatively little water: food that is rich in vitamins and carbohydrates. However, the world production of potatoes is hampered by a lack of expertise, suitable land, water and fertilisers, and the potato’s susceptibility to diseases. HZPC wants to improve the cultivation of potatoes all over the world. Research and breeding plays an important part in that ambition.

The company aims at being the international leader in the development of potato varieties and a trend-setting seed potato merchant. HZPC will thus contribute to improving the world’s food supply. Increasing turnovers and maximising profit serve our mission and purpose, while our owners achieve positive results.

HZPC wants to provide added value to all the parties in the chain and be a reliable party to work with. At HZPC, we believe that together we can make a difference, both in the relationship with our customers and in the fulfilment of their needs.

HZPC’s vision, mission and targets are rendered into two business (corporate) targets. Firstly, we aim for a return of 15 percent on the capital contributed by our farmer-owners, with a minimum of 8 percent a year. Our second business target is to pay a competitive price to our suppliers, the seed potato growers in the various countries. In this way, we provide economic continuity to the grower, variety breeder and shareholder, and subsequently also to the employee.

“The year 2013/2014 was a good financial year for HZPC, one in which the turnover dropped slightly but the gross margin continued to increase in comparison to previous years.”

Board of director’s report

The year 2013/2014 was a good financial year for HZPC, one in which the turnover dropped slightly but the gross margin continued to increase in comparison to previous years. The net operating result of HZPC over 2013/2014 is the highest net result ever. HZPC aims at achieving a prolonged growth of the gross margin while keeping costs under control. The outcome of the 2013/2014 year satisfies the company’s strategic targets.

2013/2014 financial year

The most important success factor for HZPC is the percentage of the total seed potato harvest that can actually be sold as such. To realise a high percentage, it is important to make an accurate advance assessment of the market, to carry out production as planned and to also realise the anticipated sales.

Within HZPC, we devote much attention to long-term sales plans. The growing conditions for the production of seed potatoes this season were such that the harvested tonnage corresponded with that planning. Although the market always fluctuates, we were able to sell a large percentage of the total harvest as seed.

Income

Because the prices for consumption potatoes on the various markets of Northern Africa, the Middle East and Europe were higher than average through to the beginning of 2014, we were able to realise good prices for our seed potatoes. The consumption potato prices in America were slightly lower though. In Europe, the prices for consumption potatoes dropped sharply halfway through the financial year, but this did not affect the sales of seed potatoes.

From the start of the financial year, the Russian market was closed for potatoes from the European Union. Normally, HZPC sells seed potatoes to Russia from Finland and the Netherlands through HZPC-Sadokas, the joint venture in Russia. This concerned an important percentage of the Finnish HZPC seed potato production and a small percentage of the Dutch production.

After intensive discussion with the European and national authorities, in the spring of 2014, Russia decided exceptionally and under strict conditions to open the border for seed potatoes for a limited number of companies. For consumption potatoes, the border remained closed for the entire year. This means that there were no negative consequences for HZPC and the seed potato growers concerned.

As a result of the riots and civil commotion in Ukraine in the spring of 2014, the uncertain situation in that country and the devaluation of the currency, some of the HZPC orders were cancelled. Because the Ukrainian market is not yet fully developed, the effects have not yet really become noticeable. HZPC expects that after stabilisation, the Ukraine will become an important economic growth market again.

The Middle East is an important market for HZPC. The unstable political situation in a number of countries has not led to major market limitations this year, but the uncertainty continues to threaten this market.

The deliveries to Egypt went fully according to plan. Payments were made without any problems. In accordance with long-term agreements, HZPC has been able to collect part of the amounts overdue from past deliveries, which has led to exceptional income.

The total tonnage sold in 2013/2014, including the produce supplied under licence by third parties, increased by 24,000 tons to 679,000 tons as compared to the year 2012/2013. Over the last five years, that tonnage has increased by 5.3 percent a year and has therefore exceeded the strategic target.

Costs

HZPC aims to have the structural costs increase in a controlled way. Adjusted for a number of one-off costs, we have succeeded in limiting the cost increase. In addition to the normal operating expenses, HZPC incurred expenses for special projects and to test out and develop new markets.

Market explorations in India in the year 2013/2014 under review have led HZPC Holland to set up a joint venture together with Mahindra Agri Business (part of Mahindra & Mahindra Limited). Our joint venture Mahindra-HZPC was formally established in July 2014 as an Indian seed potato company that will start using HZPC varieties in the coming years. The company will combine the technical knowledge about the varieties and seed potatoes of HZPC with Mahindra’s knowledge about and experience of the agricultural market in India. HZPC holds 40 percent of the shares.

A great deal of effort has been put into the development of the Chinese market. Since 2002, HZPC varieties have been trialled and used there; HZPC also receives licence fees from that country. HZPC would like to accelerate the development of the Chinese market (potentially a big market). That is why HZPC will make strategic choices within the possibilities of the local legislation about whether or not to make additional market investments.

HZPC has ended the participation in HZPC Sverige AB because of insufficient profitability. The slow modernisation of the Swedish seed potato market, the return to traditional varieties and a laggardly acceptance of new varieties are the causes. Swedish growers continue to take advantage of the HZPC varieties via several distributors. Seed for this market is grown in Finland, the Netherlands and in the seven other European countries in which HZPC cultivates seed potatoes.

Margin

HZPC’s gross margin has developed well this year. The margin on the turnover of HZPC Holland is small. The margin on the seed and consumption potatoes grown in pools and sold by HZPC Holland is fixed in agreements with the Dutch growers, and fluctuates in line with the performance of HZPC. Because of the higher percentage of seed that has been sold by HZPC Holland, the margin of HZPC Holland is higher this year compared to last year, but the record year 2010/2011 will not be surpassed.

In addition to the gross margin of HZPC Holland, the gross margin of our foreign participating interests is an important pillar under our organisation. In accordance with our strategy, we see that the gross margin in nearly all our foreign participations has improved.

An important strategic objective for the coming five years is to secure an increase in the total gross margin. The 2013/2014 results are above the strategic objective.

Net result

A combination of successful sales, the increasing gross margin and the controlled cost development has led to HZPC’s good net results, which are the highest in the history of HZPC.

This net result has led to a Return on own Equity Capital (ROE) of 23.7 percent, which is high and comparable to the ROE realised in the years 2007/2008 and 2010/2011. Strategically, HZPC aims for a Return on own Equity Capital of 15 percent a year.

Solvency

Solvency is above 40 percent, the minimum level HZPC requires, creating a sound financial position. Solvability has in fact risen to 44.1 percent.

Cash-flow

The growers' deposits are a permanent source of financing. To control the liquidity risks, we have agreed credit lines with the banks to ensure that we always have sufficient liquidity. In the past year, HZPC further improved its cash flow to a surplus of EUR 15 million. This is mainly explained by earlier payments from our customers.

HZPC Certificate

The price of the HZPC Certificates increased again during the two market sessions in the past financial year, with 9 percent and the maximum 10 percent respectively. This demonstrates the continuing confidence the certificate holders have in our organisation. Together with the highest dividend ever - EUR 7.50 per certificate - and the increase in the value of the certificate, the overall rate of return for our certificate holders amounted to 29.7 percent.

Strategy

HZPC’s strategy was set out in the previous financial year, and the qualitative and quantitative objectives have been described for the entire company, per sector and per employee post, along with the activities that need to be carried out to implement this strategy. The strategy has also been fine-tuned into the various countries, where the objectives and actions are also determined.

The implementation of the strategy is on schedule, which is illustrated by the development of the total tonnage, the gross margin and the costs development.

The starting point of this strategy is the two company objectives. The first is to realise a 15 percent return on own equity capital, with a minimum return of 8 percent a year.

Our second business objective is to pay a competitive price to our seed potato growers abroad.

The main points of our company strategy are:

  • HZPC already knows a great deal about the potato and wants to know even more about the potato:
    • about the varieties, their characteristics, their resistances, their breeding and cultivation;
    • about the growing conditions throughout the world and the international wishes in the various markets HZPC serves.
  • We focus on specific market sectors and stimulate the use of and trade in certified seed.
  • We want to add value to each element of the value chains in which we operate by creating new and better potato varieties and by cooperating within the chains.
  • We want to set a standard for reliability and quality in the sector.
  • We invest in new geographic markets that possess the infrastructure to create sufficient volume and margins.
  • We want to improve the efficiency in our business continuously.
  • We seek to achieve a good return for our certificate holders and a good price for our growers.
  • We contribute to the development and production of sufficient and healthy food for a growing world population in a long-term, responsible way, with respect for man and the environment.

Processing sector strategy

In this HZPC Annual report, we will be focusing on the French fries, Crisps and Peeled market sectors, the sectors which we have brought together under the heading Processing.

The Processing sector has increased more rapidly in recent years than our Traditional and Retail Fresh sectors. We expect the increase in volume to continue in the coming years.

The Processing sector is active in nearly all the countries with French-fry and potato crisps factories. In countries where we do not grow or market the seed potatoes ourselves, we work with partners who produce these varieties under licence, thereby extending the operational area of this sector over all continents. Growth will mainly be achieved outside the European Union.

The latest varieties enable us to approach nearly all the French-fry factories that supply major Quick Service Restaurant (QRS) chains (quick service restaurants). With our seed potatoes, we want to fulfil the wishes of these factories. It is important to collaborate closely with these factories and to ensure that our varieties are properly introduced and cultivated, and geared to the wishes of the consumer profiles within the sales channels. It is essential to have good product support in place in this sector.

EU and national politics

As a result of political choices made in the European Union (EU) and the Netherlands in recent years, many things are changing in our immediate environment. Political choices in other countries also have an influence on our company, and in some cases we have to ask for changes to legislation.

One of our wishes, shared by other breeding companies, is to extend the protection period of breeding products – potatoes in particular – in a number of countries. This protection period currently varies from fifteen to thirty years, depending on the national legislation of the individual countries. As universities seem to be focusing less on fundamental research, HZPC would like a general protection period of thirty years in order to be able to carry out its own fundamental research into varieties that are geared to solving the problem of food supplies and the problems in specific regions.

The EU has worked on a new regulation for plant reproductive material (PRM) this year. However, in the spring of 2014, right before the dissolution of the European Parliament, this legislation failed to get through the European Parliament. The European Commission will probably submit a new proposal. The new proposed legislation zooms in more on biodiversity, hobby growers and food safety rather than the protection of the farmer and horticulturist. The purpose of the old legislation was to give that group in particular assurances for good planting stock.

Plant breeders are using original genetic sources. According to new international agreements, these breeders should contribute financially to the countries of origin of those genetic resources. The EU will also ratify these agreements, which means that HZPC will make financial contributions to these countries. It is not yet clear how this will be arranged.

The European seed potato trading merchants have urged the EU to make the nomenclature and standardisation of the classification of seed potatoes more uniform. After years of negotiations, the EU Member States decided to amend the directives for seed potatoes at the beginning of 2014; in future, all countries will work with a uniform system.

In the Netherlands, there has been a political debate on the autonomy of inspection services for sowing seeds and planting material. The proposal from the politicians is to integrate these inspectorates with the Ministry. Since the sixties, these organisations have been run by the sector itself, within the framework of ministerial legislation. HZPC makes a plea for the continuation of the autonomy, as losing it is expected to lead to higher costs for both growers and HZPC.

HZPC deems the closing down of the product boards, another wish of the politicians, to be undesirable. An important task of the Agricultural Board is to administer and control the general regulations for quarantine diseases. The Ministry will have to take over this task when it closes down the product boards if negative consequences are to be avoided.

The EU has enacted legislation on the use of uncertified seed from the own farm, the so-called Farm Saved Seed (FSS). FSS is much used throughout Europe. This is permitted within the standard regulation, provided that licence fees are paid to the owner of the variety that is being used. It is important for HZPC that this legislation is complied with, but this takes up a great deal of time and energy. It is therefore important that EU countries enforce these licence payments properly.

Prospects

HZPC is a healthy company that will continue to develop well in the global seed potato market. HZPC's total tonnage amounts to a few percent of the total volume of potatoes that are planted throughout the world. This shows that there are still many opportunities in markets where HZPC is still barely active. These markets are not always easily accessible, but HZPC is happy to take on the challenge of developing such markets.

No two potato seasons are the same. Prices and volumes, and subsequently the results, fluctuate from one year to the next. The market conditions and the sales of Harvest 2014 will therefore also differ from Harvest 2013. At this moment, it does not seem likely that the 2013/2014 net result will be equalled, but that does not detract from the strategic long-term objectives.

The Management Board had long talks with the Supervisory 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 Board is pleased to note that the Management Board has decided to seek 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 Board has been sufficiently informed by the Management Board about all findings and consultations.

Personalia

Board of Directors*
Management team*
Supervisory Board*
Works Council*
Manager*

Key data

 

2009/10 2010/11 2011/12 2012/13 2013/14
x 1 EUR million          
           
Result          
Consolidated net turnover 210.4 283.9 229.2 280.0 272.9
Gross margin 32.9 43.2 39.1 45.8 47.5
Net results financial year 3.6 8.6 4.4 1.0 9.2
Depreciation on tangible
fixed assets
1.9 2.1 2.2 2.4 2.6
Investments in tangible
fixed assets
6.2 1.0 2.9 2.1 2.8
           
Balance sheet          
Capital 34.1 37.1 38.6 38.8 42.3
Net cash flow from
operating activities
7.9 0.3 3.9 8.1 15.5
Cash and cash equivalents 20.5 20.6 12.4 17.8 32.9
Grower deposits 16.9 20.0 16.6 20.8 23.8
Balance sheet total 75.3 79.8 82.9 91.1 95.9
           
Capital and reserves as %
of the balance sheet total
45.3% 46.5% 46.6% 42.6% 44.1%

Depositary receipt for shares

HZPC has issued 783,725 shares with a nominal value of EUR 20. The HZPC Association (Vereniging HZPC) owns 100 percent of the shares and has certified all the shares. The certificate holders form a closed group and have to comply with specific quality requirements. All certificate holders have a business agreement with HZPC or have had one in the past.

Twice in the financial year, in November and in May, the HZPC Association organises a stock trading day. Rabobank, in fact, organises the stock trading day and deals with the administration of the certificates.

The certificate holders receive information about the company through press releases and via the HZPC website: www.hzpc.com. In addition, Dutch certificate holders receive the Company’s Annual Report and Client Magazine ‘Ruggespraak’.

 

2009/10 2010/11 2011/12 2012/13 2013/14
           
Profit per share (x EUR 1) € 4.62 € 10.94 € 5.67 € 1.30 € 11.74
Dividend per share (x EUR 1) € 3.00 € 7.00 € 3.75 € 1.00 € 7.50
Dividend as % of the profit 65% 64% 66% 77% 64%
           
Price per 30 June (x EUR 1) € 44.00 € 53.20 € 64.35 € 77.90 € 93.50
           
Return on shares (x EUR 1) € 3.50 € 16.20 € 14.90 € 14.55 € 23.10
Return on shares % of the price (per 30 June of last year) 8.0% 36.8% 28.0% 22.6% 29.7%

Other chapters

Our Annual Report read this chapter Management (operational) read this chapter Corporate Management 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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