06 Compliance

HZPC Holding is a two-tier board company with an Executive Board and an independent Supervisory Board (SB). The Executive Board manages the Strategic Business Area Europe, the Strategic Business Development Area, STET Holland, IPR and HZPC Research & Development.

The consequences of the pandemic are clear in terms of both income and expenditure. We sold fewer seed potatoes in certain areas and the fries industry bought fewer seed potatoes. This had a significant impact on our result. This year, however, we saw a recovery and debtors developed in a positive manner. The management of debtors is, and shall remain, an important activity that requires attention within HZPC.

The impact of COVID-19 is clear in financial year 2020/2021. The pandemic set us new challenges. Home-working suddenly became the norm and we had to cope with all sorts of measures. Our ICT network and infrastructure had to bear a greater load.

We were faced with lock-downs and changing geopolitical circumstances. This was reflected in trade both on a global and local level.

HZPC is growing. That does correspond with an element of risk. A continual focus is required. It all starts with clear (internal) process and procedures. In this context, it may sometimes seem as if business and enterprise comes in second place but nothing could be further from the truth. In order to be able to continue to grow, it is necessary that we have and keep things in order internally. The ERM (Enterprise Risk Management) is a significant element of this.

All businesses take risks. Our success is determined by the extent to which we are aware of and can identify risks and opportunities. By taking calculated risks, we are able to work on maintaining a financially healthy and sustainable company. Risk management is therefore an important aspect of HZPC.

As part of the strategy, we are working on further improving the professionalism of risk management within HZPC. To this end, we are applying an integrated approach, supported by ERM.

1. Competition

Competition is ongoing. If we anticipate on time, we are able to sustain and enlarge our advantage in the market. We have a multidisciplinary team with Finance, R&D and Marketing and Sales. The team takes a structural approach to monitoring R&D investments, M&A changes in strategy and/or business models, and market dynamics.

2. R&D-investments & innovations

The choices we make with respect to R&D investments have a huge impact on the realisation of strategic goals and the degree of growth in the long term. We regularly recalibrate the long term strategy for innovation and research.

3. (Local) markets

Political unrest, terrorist attacks, limited access to markets, recessions and pandemics are especially hard to predict. The impact on the market and on HZPC could be significant and we saw this last year with the Corona pandemic. Due to the fact that we sell a wide range of varieties to many different countries, we are able to spread the risk. We expand and embed this risk-awareness within our organisation.

4. Seed potato quality

Our customers rely on receiving top quality seed potatoes. That is what HZPC is all about. We are able to maintain this thanks to a top quality testing process. We identify any deficiencies at an early stage. Our testing and quality process is continuously improved. We are also focussing on further developing the protocols for quality control in all countries.

5. Availability of seed potatoes

Good availability of seed potatoes for the various countries and accurate forecasts are of crucial importance. Thanks to our organisation and processes, we are capable of producing the right quantities of seed potatoes for the various countries and growers.

In the growers’ market, the growers plan years in advance. As a result, the production of certain varieties may ultimately outweigh demand. Thanks to good processes and well trained, experienced personnel, however, we are able to make the appropriate decisions.

6. Diversity in potatoes

Having enough diversity with respect to the various potato varieties means we are better able to spread risk, e.g. in the case of diseases. Over the past few years, we have spent a great deal of time researching and developing sustainable and resistant varieties. We will continue to invest time and money in Research & Development over the coming years.

7. Organisation growth and development

HZPC does well when it comes to growth and flexibility. This means that we invest in effective systems and processes and in the development of new and existing employees. We set out roles and responsibilities clearly and standardise and improve processes. We also focus on attracting new talent.

8. Treasury

The financial situations of customers or countries can impact HZPC's income. Good credit control is therefore very important. 80% of our trade takes place in euros although some of the seed potatoes are bought and sold in local currency. Where we have to deal with foreign currencies, we always try to mitigate the corresponding risk. This year, we were affected by measures taken by the Central Bank of Lebanon as a result of the political situation, the pandemic and the explosion in Beirut. We have also been confronted with restrictions in currency transfers due to international boycott measures.

9. Internal control

As a result of HZPC’s ongoing growth, it is also wise to raise the bar in terms of internal control and risk management. This, in turn, ensures we have access to reliable financial information, are able to maintain operational efficiency, and can comply with laws and regulations

10. IT & safety

Our business operations increasingly depend on a reliable and effectively secured IT network, particularly now that so many people are working from home and HZPC is expanding further. We have set up a policy with respect to prevention and tracking. Furthermore, we constantly check and optimise the various systems.  Every year, we also conduct a penetration test with a focus on cybersecurity.

11. Reporting & announcements

Necessary (financial and non-financial) reports and analyses are vital in order to make decisions and fulfil legislation and regulations. We are implementing a new, user-friendly ERP system and are reviewing policy and procedures. Implementation of this will take the next three and a half years.

12. Complying with laws and regulations

We conduct business with various, sometimes high-risk, countries where we must fulfil the appropriate laws and regulations. When it comes to Legal Entity Management and contract management, it is important to ensure your house is in order. We are able to effectively manage this risk and, where necessary, we focus on improvements by means of establishing and formalising working methods.

Net turnover of EUR 312,1 million was recorded in the past year. The gross margin for the organisation has increased to EUR 56.8 million. The net profit before deduction of costs from the Connecting Growers programme has stayed nearly the same as last year, at EUR 1.4 million.

We have invested in our company this year, despite COVID-19, and we will continue to do so. The first share of the investments in R&D facilities last year has now been put into use. The next stage is planned for the coming financial year. We have also invested in a new office in France. This office will be completed in the coming financial year. The invested capital as per the end of the financial year 2020/2021 stands at EUR 33.4 million and is thus EUR 3.8 million higher than last year. As well as the aforementioned investments, we are also investing in regular replacement. We expect a higher amount of investments in the coming year. The Aurora project is an important aspect of this. Within this, we are attempting to improve processes and replace the old ERP system. This will be realised alongside regular investments in replacements.

The financing structure has not been affected by any major changes this year. As a result of an improved cash position, we are able to reduce our provisions. The solvency of the business has risen from 37 percent in 2019/2020 to 41.6 percent in 2020/2021.

Last financial year, the COVID-19 pandemic, but also the low oil price in 2019, had an impact on our customers and thus on our turnover and margin. One of the largest customers in the Middle East has ordered less due to the reduced availability of hard currency for the purchase of seed potatoes in 2020. In addition, some contracts with the chip industry have been renegotiated. This is the reason that our physical delivered tons are lower and our margin is lower. Due to higher licensed tonnes, the total tonnage is slightly higher than last year. The costs were lower because we postponed several activities. As far as the debtor position is concerned, the situation has improved considerably. Whereas last year we were confronted with increasing debtor positions, this year we have seen clear improvements leading to a lower debtor position.

COVID-19 seems to be on its way out, but it will probably not disappear. We may be faced with a new wave. The economic consequences are also not yet entirely foreseeable. Management continuously assesses the available information and the risks in order to take appropriate measures. The corona crisis has had its impact on the company's liquidity, which it has managed to cushion through adequate financing. Despite these measures, we failed to meet some of the covenants of the financing condition. The bank has issued a waiver regarding the breach of the covenants for the current financial year.

The management continuously monitors the development of turnover and costs in order to keep a good view on the development of the liquidities. In addition, analyses are carried out to be able to take additional measures in time. Based on the analyses conducted by management and the company's current results and financing position, the financial statements have been prepared on the assumption of continuity. Based on an updated prognosis in September 2021, we expect to be in compliance with the bank's covenants until at least October 2022.

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

Twenty years ago, almost all certificates were in the hands of active growers. This has now fallen to around half. This primarily occurs because many growers are no longer actively involved in growing, but hold onto their certificates and rarely offer them for sale. These certificates are then bought by very few active growers.

The senior managers, in consultation with the SB, the Board and Association HZPC, and with permission from the certificate holders, have decided to find a way to ensure that more certificates end up in the hands of active growers. To this end, the SB and the Board have approved the creation of the Connecting Growers programme, proposed by the Executive Team.

Read more on: www.hzpc.com/cg.

Twice every financial year, in November and May, the Association organises a stock exchange trading day. During these days, as well as the certificate scheme for staff, HZPC will also buy certificates for the Connecting Growers programme.

Association HZPC was the stockholder and Captin was the market supervisor for the stock exchange trading days in November 2020 and May 2021. Captin also provides the administration for the certificates.

The certificate holders were informed about the business by means of media messages, the annual report and via the website for HZPC Holding (www.hzpc.com). In addition, Dutch certificate holders receive the company’s client magazine ‘Ruggespraak’.