Tereos ComRisk London May 2016

1. Implications of political risk
on markets
Kim BENNI
ComRisk, 26th of May, London

2. • This document was prepared by Tereos (the “Company”) for the sole purpose of the “ComRisk 2016
conference” organized in London, May 2016.
• This document contains certain statements that are forward-looking. These statements refer in particular
to the Company’s forecasts, its expansion of operations, projections, future events, trends or objectives
which are naturally subject to risks and contingencies that may lead to actual results materially differing
from those explicitly or implicitly included in these statements.
• The Company, as well as its affiliates, directors, advisors, employees and representatives, expressly
disclaim any liability whatsoever for such forward-looking statements. The Company does not
undertake to update or revise the forward-looking statements that may be presented in this document to
reflect new information, future events or for any other reason and any opinion expressed in this
presentation is subject to change without notice.
• This document does not constitute, or form part of, an offer or invitation to sell or purchase, or any
solicitation of any offer to purchase or subscribe for, any securities of the Company in any jurisdiction
whatsoever. This document shall not form the basis of, or be relied upon in connection with, any
contract or commitment whatsoever.
• Please note that all percentages included in the following presentation may be calculated on non-
rounded figures and therefore may vary from percentages calculated on rounded figures
Disclaimer

3. Tereos an unique profile of Cooperative Sugar
Group
24,000
EMPLOYEES
$5.0 Bn
REVENUES
SUGARSugar
No.3 worldwide
Alcohol and
ethanol
No.1 in Europe
Starch
No.3 in Europe
12,000
COOPERATIVES
GROWERS

4. Tereos sites around the world
Brazil
China
India
Indonesia
Singapore
47 industrial sites and 6 trading offices in 14 countries
ASIA
LATIN
AMERICA
Kenya
Mozambique
Réunion
Tanzania
Belgium
Czech Republic
France
Italy
Romania
Spain
Switzerland
United Kingdom
EUROPE
AFRICA
INDIAN OCEAN
Tereos Commodities

5. What are the impacts of political
decisions on markets ?
“Hope is not a strategy”
– Yogi Berra

6. But more important : how to actually
minimize the impact ?
“He who knows when he can fight and when he cannot will be victorious”
– Sun Tzu
2

7. • Import/Export taxes  permitted under WTO
• Import/Export ban  temporarily permitted under WTO
• Import/Export quota  temporarily permitted under WTO
• Indirect restrictions  GMO restrictions, long delays to get customs
clearance, safety concerns
• Currency Shortage of hard currency to pay for imports (Venezuela),
devaluation of Russian Ruble, Ukrainian Hryvnia, Brazilian Real
• Sanctions  Cuban embargo, sanctions against Iran/Sudan/Myanmar
The political decisionmaker’s arsenal
or the risk manager’s seven circles of hell

8. • XX
2010 Russian grain export ban
Impact of political decisions on markets
Early June : situation is (almost) normal
Early July : temperatures reaches 40°C+
Early August: crops are severely damaged

9. • Heat wave in Russia
• In a wildly anticipated
move, Russian gov’t
decided on 10th of
August to put an export
ban in place, which
lasted for almost a year
Misleading official
production statistics
Rally in price started way
before the announcement
2010 Russian grain export ban
Impact of political decisions on markets
$150
$170
$190
$210
$230
$250
$270
$290
$310
FRENCH FOB Wheat US FOB Wheat
UKRAINE FOB Wheat RUSSIA FOB Wheat

10. • Build an independant & reliable market information network
 Boots on the ground : Local informants / partners / in the supply chain if possible,
lobbying in key political instances
 Eyes in the sky : Satellite imagery, production estimates
• Contract design
 Make as little as possible commitment to origin/destination to be able to ship to/from a
different location
 Include a « force majeure » clause covering impacting situation such at least war,
sanctions, major events, enforcable under clear international law
 Consider insurance on political risk
 At the very least have a limitation of responsability clause to some % of product value
 Have enough logistical flexibility to avoid demurrage charges and swiftly divert goods
 Use small logistical units, short payment terms
Export taxes, ban & informal restrictions
How to actually minimize the impact ?

11. $0.22
$0.27
$0.32
$0.37
$0.42
$0.47
$0.52
$0.57
$0.62
$250
$300
$350
$400
$450
$500
$550
January-13 January-14 January-15 January-16
Real
RawSugar
Raw Sugar 12 months ahead in USD/MT
Value of a Brazilian Real in US Dollars
• Brazil is the world #1
sugar producer and
exporter
• Thus value of sugar in
global markets is related
to the value of the
Brazilian Real
• Political and economical
turmoil in Brazil is
pressuring down the Réal
The world sugar market
disconnected from the Réal
2015 Brazilian currency crisis
Impact of political decisions on markets

12. • Argentina is a major
exporter of corn & soybean
• For an argentinian farmer,
the price is negotiated in
US Dollars according to
world market value but paid
in devaluating Pesos
Peso was pressured and
traded on the black market
Farmers reduced selling
and kept their production in
silo bags as a « bank »
account, creating export
shortages
2013 Argentinian currency crisis
Impact of political decisions on markets

13. • Money has two functions : it is a measure of value and a medium of
exchange. One can set a price in dollars but pay in Euros, gold coins or
frozen fish.
• Denomination currency
 The most « natural » or stable currency for the pricing of the commodity,
 Often it is the currency of the marginal producer/consumer on the global export market
• GBP for cocoa, USD for sugar ?
• Payment currency
 The one that creates the least trouble for payment circuits
 Consider settlement of payables in alternate currency terms or bartering in a structured
manner
Currency devaluation
How to actually minimize the impact ?

14. 3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
$200
$250
$300
$350
$400
$450
$500
May-11 May-12 May-13 May-14 May-15 May-16
China Corn Stock to Use in Months
China corn import parity including taxes in USD/MT
Dalian corn in USD/MT
• China gov’t used to buy corn
directly from Chinese farmers to
store it in « strategic reserves ».
Since 2013 the domestic corn
purchase price was well above
world corn market import parity
+ taxes
This led to a huge inventory buildup
that is now estimated to be over 6
months of consumption, bought at high
prices
• In 2016, the China gov’t had to
change its corn policy for price
support to direct farmer support
This is now going to lead to a sharp
reduction of inventories and prices in
China
2016 Chinese corn strategy change
Impact of political decisions on markets
Inventory buildup

15. • The European ETS for
carbon is subject to
substancial political
influence to bring its
price to ~30 € /T of CO²
 Phase I ended at zero price
give a surplus of quotas
 Phase II saw decreasing
prices as industrial
production in Europe fell on
the back of the global crisis
 Phase III strongly limited the
use of international carbon
credits
2006-2016 Carbon quota
Impact of political decisions on markets
0 €
5 €
10 €
15 €
20 €
25 €
30 €
European carbon credit (EUA) International carbon credit (CER)
Phase I Phase II Phase III

16. • Actively monitor policies for gov’t of countries that matters for the
commodity you are trading
 Local information network. Bloomberg & Reuters are usually 1 week late.
 World Trade Organization tool, based on customs codes, for change of duties
 Local customs for import/export duties
• Automate monitoring, issue warnings when change is over 2 sigmas
 Big data: price, volumes per country, destination, commodity
 Bloomberg & Reuters can help you very much doing this
• Pay special attention to :
 Countries barely self sufficient in the commodity, that may swing from export to import
Change in gov’t policies
How to actually minimize the impact ?

17. • Actively monitor sanctions lists applicable to the commodities, countries and
counterparties you deal with
 OFAC, EU, Local authorities
 Example : you’re a British group, your Swiss trading branch sells in US Dollars to clients in
Iran wheat procured from Ukraine
• Get a compliance information system and laywers to support you
 As penalties can be >100x the margin of the business !
• Pay special attention to :
 The currency used : using USD means the transaction is subject to US law, even if it never
involves US companies, persons or goods
 Logistics partners you use : ports, shipping companies, bunker fuel providers
 Services you provide beyond the goods : financing, access to future markets, logistics,
insurance & storage, FX operations.
 Potential military/restricted/smuggling use of the goods you trade
International sanctions
How to actually minimize the impact ?

18. International sanctions
How to actually minimize the impact ?
Banks may
restrict
business in
certain
countries
Company
policy w.r.t
image and
C.S.R
International
law, sanctions
of OFAC,
EU27, UN
Clients may
require you
demonstrate
compliance
w.r.t child
labor,
terrorism, …
• Manage stakeholders
 International bodies
 Banks
 Clients
 Company governance