1.

Focusing on geographical regions and markets that have the prospect of structural profitable growth; for example countries such as Brazil, China, Russia and Vietnam

 1. Focusing on geographical regions and markets that have the prospect of structural profitable growth; for example countries such as Brazil, China, Russia and Vietnam

The number of farmed animals in Western Europe is expected to be stable in the coming years. In that time, most of the human population growth is expected to take place in emerging countries. Urbanisation in these countries will result in a diminishing proportion of the population being self-sufficient in food production. Today half of all people worldwide live in cities and that part will increase to 70% in 2050, making more people dependent on food produced by others. In these countries food production currently is mainly backyard farming, but there is a rapid transition to more professional, modern husbandry techniques. These new-generation farmers need feed solutions of the type offered by Nutreco. As incomes rise, so will demand for food and there will be a shift towards animal protein foods. This means that the number of animals in these countries will increase and with that animal nutrition demand will also increase. Other countries, like Russia and Latin American countries, have huge natural resourses with which agricultural products can be produced rather efficiently. Based on this strong competitive position they will become both self-sufficient and exporters of meat and meat products. We will see similar developments in Southeast Asia. The annual market growth in countries like China (7-9%), Brazil (5%) and Russia (5%) is much higher than in Western Europe. Nutreco intends to benefit from these growth trends and will expand its business in these transforming markets. Today Nutreco’s presence outside Western Europe is approximately 30%. It is our intention to expand that, with an initial target of 40% in the coming years.

These regions also offer good prospects for growth of our fish feed production and feed specialties, described below under items 3 and 4.

2. Participating in the industry consolidation process in markets where Nutreco has leading compound feed positions (for example Canada/North America, the Netherlands and Spain)

For historic reasons Nutreco has strong positions in compound feed in Western Europe, mainly in Spain and the Netherlands. Through an acquisition in 2007, Nutreco also has a leading market position in Canada. The organic growth in these markets is limited as mentioned before and any growth in market share will come mainly by participation in the industry consolidation process in these countries. Consolidation will bring additional EBITA from synergies and efficiencies, as we expect from the acquisition of 12 compound feed plants of Cargill in Spain and Portugal in 2009.

 3. Further strengthening our market positions in feed specialties and fish feed, by organic growth and acquisitions

Nutreco’s premix and feed specialties market positions in Western Europe are relatively strong with market shares in the UK, the Netherlands, Belgium and Spain in the range of 20 to 30%. However, the development of professional farming in the emerging economies such as Brazil, China, Russia and Vietnam and in other regions such as Eastern Europe leads to growth in these regions. Because, by their nature, feed specialties require high levels of knowledge and technology, these markets offer interesting opportunities for Nutreco to establish and build a presence.  

Fish feed
The volume growth rate worldwide of aquaculture has been sustained, averaging about 8% per annum for over 30 years, while the take from wild fisheries has been essentially flat for the last decade. Measures to reduce the overexploitation of wild catch marine species, combined with a growing demand for high-quality protein, creates a market opportunity that is driving further growth in aquaculture. The proportion of seafood coming from aquaculture is steadily increasing, for example, FAO statistics indicate that in 2008 approximately half of seafood consumed came from aquaculture.

The global demand for farmed fish will continue to grow and therefore the market for fish feed. Skretting, Nutreco’s fish feed business, is committed to further strengthening its global market position. Skretting supplies fish feed for more than 40 species and is the global leader in salmon feed. Currently, approximately 75% of its fish feed activities are in salmon feed with a strong presence in all the major salmon farming areas in the world: Norway, Chile, Scotland, Canada and Australia.

Nutreco’s fish feed activities for species other than salmon are mainly in Spain, Italy, France and Turkey for species such as freshwater trout, sea bass and sea bream. In Japan Nutreco is involved in the feed production for yellowtail and several other species.  

Nutreco intends to expand its fish feed business in Latin America and Southeast Asia and build a sizeable position in these regions in the coming years. The farming of species such as tilapia, pangasius and shrimp is growing rapidly in these areas. In 2009 we made a first step in the production of fish feed for shrimps and tilapia with the acquisition of Fri-Ribe in Brazil. Southeast Asia produces about 80% of all the farmed fish in the world.

Since 2009 we now also have Skretting fish feed produced in Indonesia. The first delivery, of barramundi feed, was in February 2010.

4. Executing Nutreco’s science and innovation strategy and developing new sustainable products and feed solutions to add value to our customers’ businesses and grow Nutreco’s products portfolio of higher- margin products

Feed specialties such as feed additives and highly concentrated premixes are high-margin products. With its experience, knowledge, research and innovation capabilities Nutreco is well positioned to build a portfolio of high-margin products. The margin for these products is in the range of 5 to 10%.

Throughout 2009 the world has been more aware of the food security challenge. Agriculture and aquaculture must increase production volumes over the coming 40 years to feed the predicted population of nine billion in 2050. Increasing prosperity is an additional driver of volume growth in the consumption of meat and fish. Simultaneously there is a growing awareness of the importance of animal health and welfare and the need to produce food that is environmentally and socially sustainable.

In response to these factors, farmers around the world are increasing productivity and shortening production cycles to deliver higher volumes while also making changes to improve animal health and sustainability. Nutreco feed specialties and knowledge will help farmers achieve these objectives through a range of products and with advice programmes geared towards achieving optimum business results. Feed additives, for example, can contribute to sustainable production from available resources while reducing the output of greenhouse gases and other environmental impacts.

Simultaneously, Nutreco is giving attention to improving the sustainability of its own operations and to the sustainability of the raw materials it sources. This is reported in the Sustainability section on page 46.

Premixes and feed additives are added to complete a healthy and nutritious diet. They ensure the presence of nutrients such as vitamins and minerals and contribute to efficiency and health through products such as digestibility enhancers. Due to the low inclusion rates, for example premixes range from 0.1 to 5% of the compound feed, it is economically possible to transport these products over a longer distance than complete feed. Therefore, feed specialties provide an effective means of initiating a Nutreco presence in new areas.

Our financial targets are:  
•    An operating result (EBITA) as percentage of sales of 5%
•    A return on capital employed before tax and interest of at least 15%
•    A net debt/EBITDA ratio of less than 3
•    A net debt/equity ratio maximum of 1
•    An interest coverage above 5