Productivity improvement Flour Milling Consolidation Process in the EU and Strategic Options to grow profitably! Siegfried Meyer, SGS-Geneva

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Challenges for EU Flour Milling Export market Domestic demand Margin profitability Productivity EU flour exports declined, because lost price competiveness in the last 15 years to Turkey and Kazakhstan who are the main exports now. Decline from 2.2 Mio. mt in 2005/06 to 1.1 Mio. mt in 2016/17, which is only 6% of global flour exports. In the same period Turkey increased to 30% and Kazakhstan to 18%. Just for comparision – French flour was exported at an average price of USD 400/mt, Turkish for USD 300/mt and Kazakh for only USD 220/mt Domestic demand for EU flour was constant between 2005 and 2017 and is expected to remain stable. Margin in the EU flour sector is volatile mostly dependent on wheat price fluctuation and dropped from 5% in 2006 to 1% 2011 Productivity is still not sufficient, since capacities too small and not efficient enough

Consolidation The number of mills in the EU is constantly decreasing 2007 -2015 The structure of the flour milling industry is changing and shows accelerated consolidation The number of mills continue to decline, however, production volumes are stable.and market share of large companies is increasing. When production capacities of large companies get bigger, the OPEX can be better distributed on a bigger quantity and hence margin is increasing In 2015 the top 12 companies controlled 34% of the whole market, whereas in 2007 it were only 26%. Source: European Flour Millers 2016, Rabobank 2017

Margin Weighted average EBITDA margins of key European flour millers, 2000-2017 Driving force for consolidation is the margin erosion! The margin dropped from 5 percent in 2006 to 1% in 2011 and increased slightly further to 2015. It becomes more difficult to pass on wheat price increase to customers The reaction was discussed before, since the pressure on the market is rising and thus actions are necessary to survive.

Strategic options for growth Expand into EU Specialize on niche products with added value Improve Productivity

Expand into EU Flour-milling capacity density in 2017 and average soft-wheat surplus by country, 2014/15-2016/17 Expanding provides the option to benefit from a very fragmented industry where the largest miller only controls 5% of EU flour, which is very small compared to Us or China. Not to forget, the EU is the largest wheat producing region worldwide. -bigger Capacity gives vast procurement power and supply chain cost optimization -network of mills close to consumers -redundant when breakdown -synergies overall the pan-european company

Specialize on Niche Products Weighted average EBITDA margins in wheat-flour milling below most of those in niche or specialty segments, 2006-2015 Entering into niche milling segments is a possibility to improve margins. e.g.: durum wheat, rice, corn and oat milling are four interesting segments, which have better profitability compared to wheat flour milling. However a degree on specialisation is required to be successful in the niches

Improve Productivity Capacity utilisation and market share of top 3 millers in selected countries, 2015 It is paramount to maximise the position on the domestic market, optimal sourcing strategy, adapting quickly to market changes and most importantly improve your productivity of your own mill There is a North-South Divide

Productivity of your Flour mill is key Utilisation rate Yields and losses Energy consumption Headcount Maintenance Quality Monitoring, reporting and record keeping Safety

Our Expertise is Hands-On! Experience 25 Years Comprehensive Experience in the Food Industry Experts Trading-, Procurement-, Market-, Technology-, Production Experts,.... Success Holistic Approach with Success Guarantee We have developed over the last 25 years a successful methodology to improve the productivity sustainably

Increasing Productivity?

Turn Around Management Our 5 Steps to Success! Initial Fact Finding < 1 day visit at the Client‘s Plant, proposing possibel Solutions Pre-Diagnosis 2 days visit at the Client‘s Plant, with rough Evaluation and Final Report, proposing possible Solutions Diagnosis Detailed Action Plan, which is the Blueprint for the Turn Around Management, >20 mandays Turn Around Management During 2-6 months, on-site, Implementation of Action Plan Audits Verification of Actions implemented, over a period of 12 months, with Audits every 4 to 6 weeks.

2 days visit at the Client‘s Plant, with rough Evaluation and Final Report, proposing possible Solutions Visit of the Production Plant Review of Production-, Maintenance- & Quality-, Records Review of Input/Output Balances – Products/Utilities Review of Job Descriptions & Organisation Review of Yields/Losses and Benchmark Qualified Meetings with the Management & Operators & Summarize with possible Savings Potentials Preparation of Final Report, addressing Savings Potentials

Report Client Expert Pool Field Expert

Our Show Case Projects

Task: Supply Chain Optimization MEASURES INPUTS SAVINGS Evaluation of Transport Logistics Assessment of current Procedures <20md Analysis of Warehouse Logistics -15% €450k/anno €80k costs Payback 2,1 months

Task: Increasing Productivity of Workforce MEASURES INPUTS SAVINGS Assessment of Job Descriptions and Application Assessment of current Procedures <5md Restructuring <30md -50% €600k/anno €70k costs Payback 1,4 months

Task: Reducing Energy Input MEASURES INPUTS SAVINGS Evaluation of Energy Input & Savings Potential <10md Implementation Extended Maintenance <40md -30% €700k/anno €200k costs Payback 3,4 months

Amortisation of our Costs in about 6 Months!

Thank you! For more information contact us : Siegfried Meyer Productivity Improvement Consulting Phone:  +43 699 110 29 494 E-mail:  siegfried.meyer@sgs.com agriculture@sgs.com www.sgs.com The part you can influence is the OPEX with Productivity Improvement Management. The market is given and hence no influence.