combined annual report and sustainability report 2014 · combined annual report and sustainability...

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Combined annual report and sustainability report 2014

Global success with German quality

C O R E V A L U E Sentrepreneurial · fair · innovative

BUSINESS UNITS

CORPORATE STRATEGY

Internationalisation Innovation

Brands

CheeseIngredients

Fresh dairy products Subsidiaries

Our goal:To become

Europe's most successful dairy

cooperative

DM

K 2020 SUSTAINABILITY STRATEGY

Combined business and sustainability strategy

Our mission: we make the best from the milk – for our farm

ers

Team

Milk

Envi

ronm

ent

AgricultureSocie

ty

DMK GROUP – our strategy

Reporting frameworkWith its third combined annual report and sustainability report, DMK GROUP is documenting its economic, ecological and social achievements for the year 2014. The company provides information to all DMK’s relevant stakeholder groups in this compact and holistic overview.

The combined reporting is based on the G3 Guidelines of the Global Reporting Initiative (GRI), which has exam-ined the report and confi rmed that it complies with Application Level B. With the help of globally recognised guidelines, the GRI aims to make organisations’ reporting more transparent and comparable. A summary of the GRI Content Index is given on page 74. The detailed version and further information are to be found on our website at

www.dmk.de/en/responsibility/sustainability/strategy/. DMK reports on the company’s progress on an annual basis and will publish its next report in accordance with the GRI’s new G4 Guidelines. The last combined annual report and sustainability report appeared in June 2014.

The present combined annual report and sustainability report provides information on the results and most signifi cant developments of the 2014 fi scal year, which runs from 1 January to 31 December 2014. In addition, the report contains information on developments in the current 2015 calendar year. The facts and fi gures relate to DMK’s associated companies and participating inter-ests. The goals of the “DMK 2020 Sustainability Strategy: Our milk. Our world.” refer to:

dairy farmers and member dairies of DMK eG and contract suppliers to DMK GmbH,

DMK GmbH and companies in which DMK has a minimum participating interest of 75 percent.

Facts, fi gures or goals with a different frame of reference are specifi cally indicated at the relevant point.

DMK has gathered the data and content in close collabo-ration with the responsible departments of the company and by analysing the following management systems:

consolidated annual fi nancial statements/fi nancial data

employee ratios: electronic personnel management system

environmental indicators: environmental management system DIN EN ISO 14001; energy management system DIN EN ISO 50001

Specifi c details of data gathering and differences in or limitations of facts and fi gures are noted directly in the relevant tables and texts.

The aim of this report is not only to provide a compact over-view for all stakeholders, but also to involve them in the process of its creation. For that reason, insights from employee surveys and the dialogue with various groups have, for example, been incorporated into the report. If you have any suggestions or comments about this report, please write to:

[email protected] are interested in your opinion.

Further information

Further information on the Global Reporting Initiative and the

GRI Guidelines can be found at www.globalreporting.org.

Detailed material about the company and the DMK 2020 Sustainability

Programme is available at www.dmk.de/en/ and in the progress reports

on the DMK 2020 Sustainability Programme.

Note

For ease of reading the masculine form is used in this report in referring

to persons. This is always taken to mean people of both genders.

About this report

With 26 sites in ten German regions and over 7,400 employees, DMK GROUP is Germany’s largest dairy company. The cooperative-based company, which has its registered offi ce in Zeven, Lower Saxony, sources around 6.8 billion kilos of milk every year from its 8,900 active milk suppliers and makes it into internationally recognised quality products for retailers, food manufacturers and bulk consumers. With a turnover of 5.3 billion euros, DMK GROUP is also one of the leaders of the European dairy industry. DMK is present in around 100 countries all over the world through strong brands such as MILRAM, Ravensberger, Osterland, Olden-burger, Humana, Intact, Leben’s, Biolabor, hansal and NORMI. The range of products made by DMK GROUP’s business units and subsidiaries covers a spectrum from basic milk products, cheese and dairy ingredients for food manufacturing to baby food, ice cream and health products.

DMK in brief

Deutsches Milchkontor eG Group key fi gures

2014

Incoming raw materials 1 billion kg 6.8

Turnover EUR billion 5.3

Investments EUR million 201.6

Tangible assets EUR million 717.0

Equity capital EUR million 573.9

Balance sheet total EUR million 1,531.9

Average number of employees 7,440

of which apprentices 254

1 Incl. raw milk, skimmed milk, cream, concentrates etc.

1


Contents

Global success with German quality

DMK GROUP is perfectly prepared for the sweeping changes in the milk market thanks to its foresighted business management. The years in which DMK has been driving sales expansion in Europe and, above all, in growth markets outside Europe are bearing fruit. Alongside the important but stagnating home market, this expansion will safeguard the economic performance of the company and its dairy farmers in the long term. With the branded products from its different business units and subsidiaries, DMK positions itself in the world market as an innovative company with a long heritage and is a reliable supplier of quality “Made in Germany”.

Leadership and strategyForeword by the DMK GmbH Management Team 4 Foreword by the cooperative’s elected offi cers 7Highlights 2014 8Business and responsibility 10The cooperative 16Stakeholder relations 18

Business and customers Brands and products 24Innovations 28Internationalisation 30Product responsibility 32

Milk production and processing Business environment and background 36Milkmaster Programme 38Animal welfare and environmental impact 40Environmental protection at the production sites 42

People and commitment Values and opportunities 48Employees 50Dairy farmers 54Region and responsibility 56

Financial information and key fi gures Group Management Report 2014 58Deutsches Milchkontor eG Group profi t and loss account 61Deutsches Milchkontor eG Group balance sheet 62Deutsches Milchkontor eG Group cash fl ow statement 64Deutsches Milchkontor eG profi t and loss account 65Deutsches Milchkontor eG balance sheet 66DMK Deutsches Milchkontor GmbH profi t and loss account 69DMK Deutsches Milchkontor GmbH balance sheet 70Target status of DMK 2020 Sustainability Strategy 72 GRI Content Index – abridged version 74

Further information Executive bodies 76SitesStructure of executive bodiesGroup structure

4 Foreword by the DMK GmbH Management Team 7 Foreword by the cooperative’s elected offi cers 8 Highlights 201410 Business and responsibility16 The cooperative18 Stakeholder relations

2 Leadership and strategy

3

As a company organised on cooperative lines, DMK GROUP places the responsible

handling of milk at the heart of its activities. With its healthy, high-quality,

responsibly-produced foods, DMK sets standards for the industry and positions

itself on the German and international markets as a successfully growing dairy

company on the way to becoming Europe’s most successful dairy cooperative.

DMK sets standards by:

fair, transparent business management with a long-term focus,

a continuous and open dialogue with the various stakeholder groups,

its alignment with the new challenges of the German and

international markets,

concentration on profitable growth in its strategic business units,

the use of brands, innovations, and subsidiaries to strengthen the total

company’s market position,

a long-term sustainability strategy that is a trend-setting combination

of corporate and social responsibility.

A model for the industry

4 Foreword by the DMK GmbH Management Team 7 Foreword by the cooperative’s elected offi cers 8 Highlights 201410 Business and responsibility16 The cooperative18 Stakeholder relations


Foreword by the DMK GmbH Management Team

From left

Dr Dirk Gloy Managing Director DMK GROUP Operations/Logistics

Sönke Voss Managing Director DMK GROUP Agricultural Affairs/Raw Materials

Ines Krummacker Managing Director DMK GROUP Human Resources

Dr Josef Schwaiger CEO DMK GROUP

Volkmar Taucher Managing Director DMK GROUP Finance/Administration

Michael Feller Managing Director DMK GROUP Marketing/Sales

Ingo Müller Managing Director DMK GROUP Central Quality Management, R&D, Ingredients



Ladies and Gentlemen, Shareholders,Our combined annual report and sustainability report for this year has been given the title “Global success with German quality”, which essentially also underpins our new umbrella brand strategy. On the basis of the vision we presented in 2013 with the core values entrepreneurial, fair and innovative, our strategy focus is to pursue profitable growth in our strategic business units in the German and international markets. We are using brands, innovations and our subsidiaries to strengthen our market position as a cooperative-based company on the way to leadership of the European dairy cooperatives. With the new umbrella brand strategy, we are positioning ourselves on global markets as a future-oriented company with a long heritage that also represents top German quality abroad. A partner-like relationship with dairy farmers, business partners and employees is also a trend-setting feature of our DMK 2020 Sustainability Strategy.

Our performance in this fiscal year confirms that we are taking the right approach: our turnover came to 5.3 billion euros and our profit to more than 42 million euros, and our equity ratio improved year on year to 37.5 percent. At the same time, we were in a position to make capital investments of more than 200 million euros. On this financially secure base, we are soundly placed to deal with future market fluctuations and further investments and – not least on the basis of our subsidiaries’ vigorous growth – have shown in a highly volatile market that we as Germany’s largest dairy cooperative are on the right track.

With a volume of 6.8 billion kilos of milk processed, we paid our cooperative’s dairy farmers a stable milk price of 36.86 eurocents per kilo on average, the same level as comparable dairies. This is a considerable achievement, partic-ularly in view of weaker global markets and the turmoil caused by the embargo on Russia in the second half of the year. With the milk volume rising even before the quotas were abolished, the survey of dairy farmers in the year under review shows that from 2015 onwards we can expect an annual regional increase in the milk volume of up to four percent. Since we are guaranteeing to take all the milk our farmers deliver even after the end of the milk quotas on 1 April 2015, the year under review found us preparing to process and market larger volumes profitably in the future. In order to do so we have driven internationalisation in global growth markets, invested in highly flexible modern production to process our raw materials and continued to develop our portfolio towards highly profitable products that meet customers’ requirements.

One core factor for our success is our employees. In this area, too, we have taken many measures in the reporting period to establish our vision firmly, stabilise our proven high employee satisfaction level and offer a wide range of training and continuing professional development courses – not least our advancing internationalisation makes special demands on our workforce, and we support them with language courses among other opportunities. Following the implementation of our factory structure concept, we further optimised the organisation of our company and its subsidiaries in the year 2014. To standardise processes in areas such as accounting, human resources and finance across the entire DMK GROUP, we surveyed the current situation at DMK and its subsidiaries in the reporting period. We have now analysed the results and are developing concrete measures to further optimise working relationships and efficiency throughout the corporate group. This will make an important contribution to a profitable future.

5


Leadership and strategy


Many of our customers have been making advances in sustainability issues in the past years. As a dairy company, we are in close contact with our retail partners and customers and take their changing requirements very seriously. There are many issues out there, including adherence to ethical standards, animal welfare certifications, requirements on the origin and quality of feedstuffs, the products’ carbon footprint, the maintenance of biodiversity or desires for alternative packaging. A long-term planning horizon is needed to find solutions to these different demands. In addition, negotiations have to be undertaken in a fair process between DMK and customers as to who will bear any additional costs.

To secure the economic foundations of our sites we also have to make sure that the requirements are designed in such a way that the dairy farmers can implement them. With the Milkmaster Programme, which we initiated in the reporting period, we are pursuing a new route that supports agricultural working and production methods conforming to our ideas of responsible milk production. The programme provides the dairy farmers with recommendations on areas such as feeding, animal welfare, animal health, the rearing of calves and young livestock and milk storage. The core of the programme lies in continuous further development throughout the entire value chain. Other projects from our DMK 2020 Sustainability Strategy have also been progressed in the reporting period, as you will see in many sections of this report. We take our responsibility seriously and also want to set standards for the area of sustainability within our industry.

The first months of the year 2015 show that the still-volatile market will continue to pose the expected challenges for DMK. We will face these challenges with the strategy we have adopted, and will be able to record further progress on our way to becoming Europe’s most successful dairy cooperative. A merger proposal was accepted by the executive bodies of DMK GROUP on 20 May and the members of the cooperative behind Dutch cheese manufacturer DOC Kaas on 21 May. Following this important step, DMK will systematically continue the strategy of both companies. All resolutions passed apply subject to the consent of the responsible competition authorities.

The Management Team

“We are in close contact with our retail partners and customers and take their

changing requirements very seriously.”



Foreword by the cooperative’s

elected officers

Ladies and Gentlemen, Shareholders, The long-term prospects for DMK members are bright, despite the high volatility of the milk market for us dairy farmers, particularly in the second half of 2014 and at the present time, and the impact of the end of the quota system, which has been making itself felt for some time. A growing world population and higher purchasing power is increasing the demand for dairy products, particularly in many emerging economies.

Even if the upward curve shows the occasional dip, DMK’s members are well positioned to benefit from these growth opportunities thanks to the favourable climatic and geographic conditions at their locations, their investments in modern and sustainable dairy farming and their strong and flexible dairy company partner. With a milk price of 36.86 eurocents per kilo, DMK has succeeded in paying the cooperative members at a stable level despite the difficult market, particularly in the second half. An extra payment of 1.5 cents per kilo was made in January for the month of December. In order to include the farmers in the company’s business success, DMK deliberately decided against a higher profit in the reporting period. The company ensured additional planning certainty and liquidity on the farms with monthly milk price forecasts and twice-monthly payments.

In general, DMK keeps its eyes firmly on the cooperative members’ long-term economic security and focuses its business strategy on generating the optimum value from the shareholders’ resources. The basis for the strategy’s long-term success lies in a trust-based community of the dairy farmers and the company. Both sides have done a great deal towards this in the year under review – through the dairy farmers’ high participation rate in the survey on volume planning and a total of more than 100 joint events, the transparency of information that DMK has ensured through the Milchwelt (“Milk World”) magazine and other measures, and DMK’s help in finding service providers for dairy farmers who can support them in protecting their farms better against volatile market trends.

One milestone in our collaborative relationship is the Milkmaster Programme. This was developed from the DMK 2020 Sustainability Strategy and was worked out in detail by representatives of the cooperative’s elected officers and of the company in close collaboration in the year 2014. The dairy farmers will be involved in its implementation from 2015 onwards.

Following the end of the milk quota system, it is still a concern in the current fiscal year to maintain and secure the future of our joint economic success in a fair and trust-based community. The merger with DOC Kaas is a further milestone in delivering benefits to us as farmers by a strategy backed by the cooperative.

Otto Lattwesen, Chairman of the Supervisory Board

Alfons Kerlfeld, Chairman of the Board of Management of Deutsches Milchkontor eG

SincerelyOtto LattwesenChairman of the Supervisory Board

SincerelyAlfons Kerlfeld Chairman of the Board of Management, Deutsches Milchkontor eG

7



Foreword by the cooperative’s elected officers

Highlights 2014

Milkmaster: a programme by dairy farmers, for dairy farmers In the year under review, DMK GROUP presented the Milkmaster Programme. This is a programme derived from the DMK 2020 Sustainability Strategy under which all the sustainability measures on the farms for the period 2015 to 2020 will be imple-mented. This joint DMK initiative by dairy farmers, for dairy farmers encourages methods of agricultural work and production that are in line with responsible milk production and will strengthen the cooperative’s farms.

Best employer among the large food groupsIn 2014, Focus magazine surveyed the employees of 2,000 companies in order to draw up a ranking of employers. The result: DMK GROUP is the industry leader in the cate-gory of groceries and luxury foods, animal feed, drugstore articles and medical consumer products. Following excellent results in the previous year’s rankings, this fur-ther improvement in our position is proof of the high level of employee satisfaction and the success of the company’s activities in this area.

Milk volume planning confirms joint growth trajectory In June and December 2014, DMK GROUP once more called on its dairy farmers to complete a survey on their production plans. The results provide valuable infor-mation for volume planning and evidence that the dairy farmers want to grow together with the company. On average, the survey revealed an annual production growth of up to four percent per region for the eight very different areas in which our milk suppliers are located. This means that the volume of milk processed by DMK is set to increase by 15 to 20 percent by the year 2020.

DEUTSCHLANDS BESTE

ARBEITGEBER IM VERGLEICH

In Kooperation mit:

2015NATIONALERARBEITGEBER

TOP


Highlights 2014

Efficiency and quality: milk powder factory with capacity of more than 600 million kilos of milk per year 2014 saw intensive construction work ongoing at the Zeven site: as part of extensive investments in new processing capacity and modern technology, a new milk drying plant is being built there which DMK will put into operation in mid-2015. The spray tower has a yearly production capacity of more than 60,000 tonnes of top-quality milk powder in line with interna-tional standards.

Whey proteins and lactose for the world marketProduction started at the Nord-hackstedt site during the reporting period. In future, 700,000 tonnes of whey from DMK’s cheese produc-tion will be further processed there to make whey protein concentrate and lactose. DMK GROUP and Arla Foods founded ArNoCo together in the year 2011. The 50:50 joint venture produces speciality whey products for German and interna-tional food manufacturers.

MILRAM: bucking the market trendThe year 2014 was a highly success-ful one for the MILRAM brand. MILRAM was able to expand its market leadership further in the category of herb and savoury curds: while the total market shrank by 2.7 percent, MILRAM’s sales volume rose by 2.5 percent. At the same time, MILRAM’s brand awareness rose to more than 90 percent. On the self-service shelves, the brand added to its sales by 13.9 percent (in cheese) in a declining overall market. The cheese counter saw MILRAM in second place by volume.

9



Highlights 2014

Business and responsibility

Long-term strategic growth targeted To DMK, entrepreneurial performance implies high earning power, competitive milk prices and successful presence in promising future markets. Top priority goes to maintaining and expanding the stability of the company and its subsidiaries. This takes precedence over rapid growth. DMK re-invests profits into developing new technologies and innovative products, into an attractive environment for its employees and dairy farmers and into expanding sales markets.

DMK has worked out a long-term strategy for this purpose and continued its implementation in the reporting period. The focus is on the four strategic business units of cheese, fresh dairy products, ingredients and subsid-iaries. The domestic and international business has to be strengthened in all four strategic business units by estab-lishing attractive brands, investing into high-performance research and development for market-tailored products and driving forward internationalisation in high-potential markets.

New umbrella brand concept strengthens DMK GROUP In the year 2014, DMK developed an umbrella brand con-cept which has carried all units under the single DMK GROUP brand from January 2015 onwards. For example, baby food producer Humana has become DMK BABY, the MILRAM, Oldenburger and Osterland brands form part of DMK CONSUMER. Additional areas are DMK ICE CREAM and DMK INGREDIENTS. The umbrella brand concept

demonstrates the size, versatility and performance capa-bility of the DMK family at a glance. With this approach, DMK is strengthening the umbrella brand and the indi-vidual business areas alike. The fact that DMK has made itself a success worldwide with German quality is com-municated internally and externally. The defining charac-teristics of the umbrella brand are its cooperative origins, the quality proposition, responsible, solution-oriented and future-oriented entrepreneurial actions, partner-like and trust-based dealings with customers, employees and dairy farmers and close links with agriculture.

A model for the industryThe umbrella brand strategy aligned with the company ’s vision directly leverages the strategic trilogy of a broad product portfolio, modern production sites and the strong presence in international growth markets with which the DMK GROUP positions itself as a model for the German dairy industry. The company continued to adapt its product portfolio further to the new market chal-lenges in the reporting year, which was characterised by persistent strong competition and, in the second half, by market volatility. The task in the years to come will there-fore still be to find solutions to creating value profitably with increasing milk volumes. To continue to grow prof-itably, DMK has further streamlined the production range in the strategic business units in the year under review to manage profitability and complexity. The main focus of the company’s activities is on internationally marketable products with high value added coupled with maximum production efficiency through bundling and modernisation.

With the goal of becoming Europe’s most successful dairy cooperative, DMK GROUP is focused on achieving long-term performance and profitable growth with its four business units. The company aspires to unite business success with the needs of its cooperative members and employees and the demands of the environment and society. One of DMK’s measures to this end was the publication in 2013 of the DMK 2020 Sustainability Strategy, which outlines the company’s course for the period to the end of this decade.



DMK GROUP business strategy

Cheese Fresh dairy products Ingredients Subsidiaries

Strategic business units

Sliceable cheese Mozzarella Fresh cream cheese Mascarpone

Drinking milk Cream, cream products Fresh and UHT desserts Butter

Dried milk products Concentrates Special ingredients

Baby food (Humana) Ice cream Health products

(Intact and Biolabor)

Strategies

Brands Innovation Internationalisation

Product development Process development Technology development

Asia CIS countries MENA countries Africa and South America

MILRAM Ravensberger Osterland Oldenburger

Flexibility for increasing milk volumeThe strategic investments in the new mozzarella manu-facturing plant in Georgsmarienhütte and the state-of-the-art milk powder tower, built in Zeven to produce milk powder of the best baby food quality, are to be seen in this context, for example. The factory structure concept completed in the reporting year and the further expansion of the “milk swing” have once more made DMK and the dairy farmers more future-proof in the reporting period. The “milk swing” describes the possibility of having flexible opportunities to use the raw material if prices are under pressure or demand on certain markets changes, thereby safeguarding the company against market risks.

The increasingly important internationalisation is a bonus in view of a saturated domestic market and increasing milk volumes. DMK actively continued to pursue a course focused on profitable value added and the growth oppor-tunities in promising future markets outside Europe in the reporting period. With its products for consumers and food manufacturers, tailored to the different regional markets, the company has shown positive growth in international markets in existing and new sales regions despite some upheavals in international markets.

11




Going new waysTo strengthen the position of the company as a whole, DMK GROUP is also focusing on innovation, one core ele-ment of the vision: in terms of product developments, investments in fixed assets, the optimisation of processes and structures and also new alliances with additional partners. The positive trend at the subsidiaries, all of which were profitable in the reporting period, is due to the new structures implemented by DMK in DMK BABY and DMK ICE CREAM, for example. On the stable basis of the year 2014, the company expects significant earnings growth in these areas in the current fiscal year.

The company’s handling of its product portfolio and processes is also defined by new ways. DMK has demon-strated its innovativeness by many examples in the reporting period: by the development of new products and investments of 200 million euros in new fixed assets, which will allow more efficient manufacturing of the quality products in demand on international markets. This includes, for example, investments in much more efficient curd production by bundling manufacturing in Zeven. Zeven’s new milk powder tower also ensures energy-efficient and resource-economical production in

this green-belt region with its strong bias towards dairy farming. Thanks to the expected scale effects, it is a cost-saving and highly efficient alternative to older facilities and will soon amortise the investment. The new cheese factory in Georgsmarienhütte and the modern aseptic production facility in Erfurt are also aimed at the efficient manufacturing of products for export by the latest methods and with the latest equipment.

DMK does not only innovate through capital investment. DMK GROUP operates here on the level of both content renewal and organisational structures. Against this background, the company surveyed the existing pro-cesses and structures in the year under review and has started to develop a new, Group-wide structure. This aims to tap synergies, clearly define responsibilities, stan-dardise processes and strengthen the efficiency of the corporate group.

New challenges also await the DMK GROUP’s employees as a result of the company’s increasing size and interna-tionalisation. The company will meet changing demands and structures with transparent communication and a wide range of training and continuing professional development.

Systematic risk handling

Systematic risk and crisis management supports DMK GROUP in achieving its corporate goals. It is embedded on all levels and at all sites and is a permanently inte-grated element of responsible corporate management. Risk management assesses the business activities of DMK and its subsidiaries and participating interests. The development of significant risks that could affect DMK is monitored centrally.

Defined risk owners gather the data for the assessment on the basis of qualitative and quantitative performance ratios. Interfaces link a crisis management system with the risk management system. The company prepares for possible crisis situations with measures including its own crisis organisation, nine defined scenarios with recom-mendations on actions prepared in advance and sched-uled crisis drills.



For detailed Information on the status of

the DMK 2020 Sustainability Strategy goals

please see pages 72 – 73.

AGRICULTURE

Our aspiration

We will improve the conditions in which our cattle

are kept and reduce their environmental impact.

Cow comfort

Animal health

Feed cultivation

Feeding

Fields of action

ENVIRONMENT

Our aspiration

We will improve the eco-balance

at our sites.

Energy

Water

Waste

Logistics

Fields of action

MILK

Our aspiration

We will take responsibility for our

dairy products.

Value added

Quality

Product safety

Packaging

Fields of action

TEAM

Our aspiration

Together we will do our utmost to attain

long-term success for every individual and for DMK.

Satisfaction

Training

Diversity

Elected office

Fields of action

SOCIETY

Our aspiration

We will support the regions

we operate in.

Dialogue

Dairy competence

Research

Engagement

Fields of action

Sustainability strategy

DMK 2020By 2020, we want to advance sustainability at DMK GROUP in five areas each with four fields of action and a total of 60 goals.

For more information on the

DMK 2020 Sustainability Strategy visit

www.dmk.de/en/

responsibility/sustainability/strategy/

13




Responsibility as a guiding principle Competitiveness and growth are traditionally coupled with responsible management and a regional orientation at DMK GROUP. In the year 2013, DMK presented the “DMK 2020 Sustainability Strategy: Our milk. Our world.” (DMK 2020 for short). This ambitious programme is a trend-setter for the dairy industry and draws up guide-lines for responsibility as a guiding entrepreneurial prin-ciple in the future. DMK has set itself a total of 60 goals in five areas, each with four fields of action, to be attained by 2020 – from improving animal health and paying com-petitive milk prices through being a top employer and reducing accidents to energy efficiency and supporting the rural areas at its production sites. In addition, DMK 2020 deals with such important topics as climate protec-tion, social and ecological standards in the supply chain, packaging and social engagement.

Annual review of sustainability goals All 60 goals are supported by between two and seven actions to be taken by DMK until the goals are achieved in the year 2020 or earlier. Behind each goal there is also at least one indicator, in most cases several, since the majority of DMK 2020 goals tend to be qualitative in nature. The indicators quantify how far the goals have been achieved. A control system is used for internal man-agement and control. DMK also makes selected data available to a wider public, for example in this report. The figure on page 15 illustrates the system behind the DMK 2020 goals.

In consultation with the responsible areas, DMK checks how far the goals have been achieved in annual goal reviews which take place at the beginning of the year. Where does the area stand? How far has goal achieve-ment progressed? Are the planned measures being implemented? Do the goal and action plans need to be modified?

The goal review for 2014 showed that: all the annual goals for 2014 were successfully

attained. the company has started activities for three

additional goals. four goals have made the transition from the

planning to the implementation phase.

An overview of all 60 goals and their status in the year 2014 is to be found on pages 72 – 73.

Standardised audit universe for the whole Group

The DMK GROUP audit universe applies to the entire group without exception and includes all subsidiaries in which it has an interest of more than 50 percent.

It comprises 282 defined areas that are audited at regular intervals on the basis of risk-oriented sampling.

To prevent corruption, one of several steps in every audit is a test for possible corruption risks.

This topic is also addressed in the DMK Code of Conduct. A whistle-blowing system with an external ombudsman acts as an additional preventive tool.



Sustainability management as a shared task

A comprehensive, solid structure is needed to implement the ambitious DMK 2020 programme. The company involves a variety of people and areas in implementation, thus ensuring that sustainability is anchored and embodied.

Management Board and executive bodies: The executive levels of the cooperative and of DMK Deutsches Milchkontor GmbH regularly consult on the sustainability strategy and review the com-pany’s sustainability performance.

Sustainability Management: This staff department coordinates and manages all sustainability activities and represents DMK with external stakeholders and in specialist working groups such as business initiatives.

Sustainability working group: Managers and employees of the business areas which are directly responsible for the implementation of the DMK 2020 goals and measures meet twice a year and

are in close contact with Sustainability Manage-ment. The responsible business areas include, for example, Agricultural Affairs, Packaging Develop-ment, Purchasing, Innovation Management, Occupational Health & Safety, Environmental Protection and Human Resources.

Site officers: They implement measures in the areas of Health & Safety, Environmental Protection and Energy Management at the sites.

Council for the Future and Sustainability: This high-ranking body made up of external experts from business, science and politics is an important driver for the Management Board in the strategic direction of the company where matters of corporate responsibility are concerned.

Steering Group: Every year, representatives of the Council for the Future and Sustainability and DMK’s Management Board assess the achievement of the goals and deliberate and decide strategic issues.

Illustration of the DMK 2020 control system

Actions to achieve goal (selection)1) Implement a system for placing annual research projects

2) Support at least one research project p. a.

3) Screen possible topics for future research projects

Control indicators for goal Number of research projects supported

Amount of support (€)

DMK 2020 SOCIETY AREA, RESEARCH FIELD OF ACTION

Goal“Support research across the milk value chain”

15




Founded on an organically grown community The farmers have always been central to DMK as a com-pany organised as a cooperative, since they are the sup-pliers of the milk, our most important raw material, and the owners of Deutsches Milchkontor eG. Through their work in agricultural bodies, they are also directly involved in the dairy company’s strategic decision making. As a result, the farmers’ milk production goes hand in hand with milk processing and marketing within the coopera-tive-owned company. The 8,900-plus farmers maintain a close relationship with “their” dairy company out of conviction. There is great mutual trust between DMK and the farmers on the basis of long-term collaboration, in many cases grown over several generations. This close connection between the partners in a value chain also limits unpredictable business risks in the everyday run of business.

All dairy farmers are involved in the company through the executive bodies and therefore participate actively in DMK’s corporate development and strategic decision making. DMK’s Management Board consults with the cooperative’s Supervisory Board and Board of Manage-ment members on important deliberations and decisions on a basis of transparency and open communication. Topics that DMK has worked on together with the dairy farmers in the reporting period include capital invest-ments as well as required processing capacity and sales opportunities for the high growth in the milk volume in the coming years.

The support of the executive bodies was also a key success factor in the speedy introduction of the large-scale, trend-setting Milkmaster Programme.

Cooperative

With a good 8,900 dairy farmers and cooperative shareholders, DMK GROUP is one of the major dairies in Europe organised on a cooperative basis. The farmers identify with DMK and the company’s strategic direction. Every dairy farmer embodies the principles of this modern cooperative by running his farm responsibly and taking a hand in shaping the entire company and its performance.

The sustainability theme is very important, because most of the milk and dairy products go for export. The close interaction of business, politics, associations and dairy farmers in designing a common approach was impressive.

The Young Dairy Farmers’ Working Group undertakes a study trip every year. In February 2014, 22 members of the Working Group set out for Ireland to learn how dairy farming is done in the “Emerald Isle”.

Visits to several dairy farms, guided tours of the Dairygold and Glanbia dairy companies and numerous talks with Irish experts were on the agenda.

Ireland is also getting prepared for the post-milk quota era. Dairy farmers are planning to produce around 50 percent more milk by the year 2020.

Activities of the Young Dairy Farmers’ Working Group


Cooperative

Clearly structured executive bodies Entrepreneurial success depends on clear assignment of responsibiities. The GmbH, or limited company, is respon-sible for DMK’s business operations. The production and quality of the raw material milk is in the hands of the cooperative of more than 8,900 farmers. Its structure is clearly defined, with a Supervisory Board, Board of Man-agement, Advisory Board and an Annual Assembly.

The Board of Management elected by the Supervisory Board is made up of members from the cooperative’s eight regions and is responsible for leading Deutsches Milchkontor eG, the cooperative.

The Supervisory Board monitors the executive activities of the Board of Management. In important matters, the consent of the Supervisory Board to decisions of the Board of Management is required.

At the Annual Assembly, 421 representatives pass resolutions once a year on important matters such as the approval of the annual financial statements and the appropriation of the year’s net profit as well as amendments to the articles of association and the election of the Supervisory Board members. One representative per 25 members is elected.

The Advisory Board, which consists of 80 members, serves as the interface between the members and the executive bodies. It discusses all strategic deci-sions made by Deutsches Milchkontor GmbH and the cooperative and advises the Board of Management and Supervisory Board. Important decisions by the Board of Management and Supervisory Board are discussed by the Advisory Board in order to preserve the cooperative principles.

The aim of the Young Dairy Farmers’ Working Group is to promote young talents in the group of elected

With qualifications into our shared future

Developing the elected officers plays a central role for DMK. The aim is to give the cooperative’s members the skills they need to work in the executive bodies. In the year 2010, the company therefore developed a manda-tory training programme for all relevant members of the executive bodies in collaboration with the cooperative training institute Akademie Deutscher Genossenschaften in Montabaur ( www.adgonline.de). The seminars and advanced training courses on subjects such as business administration, sustainability and distribution are attended by all elected members of the Supervisory Board, Board of Management and Advisory Board. The elected officers’ training is run by external speakers, enabling the expertise to be taught and deepened on an independent basis.

“DMK GROUP supports us farmers on practical

questions and involves us in important

decisions – I like that.”Peggy Käferle, dairy farmer

officers. Up to 75 young farmers should be active as elected officers during the five-year period. Three meetings are held every year. The young dairy farmers in this voluntary organisation also make an excursion once a year. The working group’s members are aged between 18 and 35.

The executive bodies end their terms of office after five years. The future Annual Assembly, the Advisory Board and the Young Dairy Farmers’ Working Group were re-elected and appointed for the coming five years in the spring of 2015. The cooperative prepared intensively for this in the period under review and, among other actions, nominated the candidates at the “DMK vor Ort” (“DMK on site”) events in the autumn.

17



Cooperative

Stakeholders are various interest groups that have expectations on the company. Some of them have close links with DMK – the dairy farmers, employees and customers, for example. Other groups also express their desires and expectations, including media and consumer organisations. The DMK GROUP’s activities affect a variety of stakeholders. At the same time, stakeholders often have a significant influence on the business conditions for our corporate development. For this reason, DMK maintains a respectful and open dialogue with stakeholders and adopts new ideas.

Stakeholder relations

Milchindustrieverband e. V. (MIV)

Deutscher Raiffeisenverband e. V. (DRV)

Association of the German Confectionery Industry (BDSI)

Our memberships and alliances (selection)

DMK collaborates actively with around 90 organisations and associations in Germany and internationally. You will find a list of all our memberships at www.dmk.de/en/responsibility/sustainability/strategy/. They include:

Dairy farmers

• Shareholders• Contract suppliers• Executive bodies

• Management Team• Employees• Apprentices• Works Council

• Retail customers• Industry customers• Suppliers• Banks/potential investors

• Universities• Universities of applied science• Research institutes

• End consumers• Citizens/citizens' initiatives• Communities at sites

• Daily and local press• Trade and business press• News agencies• TV and radio• Online media

• EU institutions• Members of national and regional parliaments• Local politicians

• NGOs in environmental & consumer protection and animal welfare• Associations

Employees

Associations/NGOs Political sphere/public

Media Consumers/public

Science/academia Business partners

Global Dairy Platform (GDP)

Roundtable on Sustainable Palm Oil (RSPO)

UTZ Certified



Detailed analysis of stakeholder expectationsDMK has identified eight groups of stakeholders (see graphic on page 18) and has described in detail in previous reports what these stakeholders expect of the company and the formats DMK employs for dialogue with these groups (see Combined Annual Report and Sustainability Report 2013 pages 16 – 17).

DMK has established a number of approaches and anal-yses over the past years to find out about stakeholders’ expectations and encourage dialogue with them:

Direct exchange of views with stakeholders: Sustain-ability issues are also being increasingly addressed in the forums where views are exchanged with stake-holders. Examples of such forums are the executive bodies, events with the dairy farmers (see also the chapter on the cooperative), reports in the employee newsletter with options for dialogue and the annual talks with retail partners.

Analyses: Regular analyses provide good indications as to how the opinions of specific stakeholder groups are trending. These include analyses of customer complaints, consumer enquiries and media analyses. In addition, DMK analyses feedback from stakeholders.

Stakeholder surveys: After the Combined Annual Report and Sustainability Report is published, a sur-vey is conducted among relevant stakeholders every year: how well do they feel they are informed by the report, what topics are particularly important to them, where is there room for improvement? The sur-vey for the year 2014 also supplied valuable feedback. The aim here is to reach and involve a large number of stakeholders in future.

Hotspots in the dairy industryDuring the reporting period, DMK compared the current status of its findings about stakeholders in an analysis by an independent research institute.

The aim was to receive external validation of the extent to which DMK covers topics relevant to stakeholders in order to obtain new insights into the eight stakeholder groups’ current and future issues (“hotspots”). The Insti-tute For Sustainable Management (IfNM) conducted the analysis and identified the different stakeholders’ hotspots. The results showed how diverse and, to some extent, contradictory the stakeholders’ expectations are.

Some topics such as traceability, pasture feeding, domes-tic production of feedstuffs and GMO-free feeding, animal welfare and regional production play a role for the broad spectrum of stakeholders. However, widely differing aspects are considered important on animal welfare issues, for example. Some stakeholders such as dairy farmers, business partners and consumer protection advocates also find the payment of competitive milk prices important. For the politicians, in contrast, this point does not play a central role. They place more emphasis on securing agricultural jobs and increasing the use of renewable energy sources. Scientists demand that dairy farmers should keep breeds intended for different purposes in order to increase biodiversity. Dairy farmers’ wishes include more information to con-sumers on the link between supermarket prices and milk production.

Overall, the comprehensive analysis provides DMK with starting points for developing new themes in its dialogue with stakeholders. At the same time, it highlights those areas where more information is needed. One of these, for example, is the understandable desire for pasture feeding for the cattle. For one thing, this is not possible in all parts of Germany for reasons of space, and in addi-tion it does not always represent the best option for the cattle. Here, factors such as weather conditions and feed composition requirements also have to be considered (see also the chapter on business environment and back-ground).

19




“DMK GROUP’s sustainability strategy across all stages of milk production, processing and marketing is the only one of its kind to date. It is a pioneer-ing achievement, culminating in the recent finalisation of the Milkmaster Programme. Critical subjects such as environmental and climate protection, animal welfare and the basic raw materials processed are also addressed. I have been a member of the Expert Committee on Animal Welfare since 2014 and was able to convince myself of the seriousness and quality of DMK’s sustainability management both at committee meetings and in working directly with the company.”

Prof. Dr Franz-Theo Gottwald, Director of the Schweisfurth Foundation

“I have been tracking DMK’s sustainability activities closely since 2009 – as a Green who has fought vehemently against the indus-trialisation of farming in the past. I can now say with total convic-tion that a major corporate group and sustainability are not a contradiction in terms if the group’s top management sets out seriously not just to communicate sustainability as an empty marketing cliché but to implement it structurally in milk production on the farms and in processing as a consistent principle. That’s not a walk in the park, it can’t be done overnight. DMK has launched highly ambitious but also potentially successful activities. DMK is therefore on track and is a pioneer in farming that focuses on the welfare of the farm animals. This is in accordance with the results of the latest report by the German government’s agricultural Advisory Board on the subject of farming with livestock.”

Rezzo Schlauch, lawyer, Parliamentary Secretary of State (retired)

The opinions of our stakeholders are important to us. Here are comments from some of you about your relationship with DMK GROUP and the DMK 2020 Sustainability Strategy – including constructive feedback at our explicit request.



“The public is watching developments in livestock farming with a critical eye, and food retailers are now also very sensitive in their reactions here. In this situation, it is very important for dairy com-panies to develop an information base proactively together with their suppliers and aim for a continuous improvement process. DMK is on the right track with its ambitious Sustainability Programme. It’s important to take the farmers along on this track step by step and to show them opportunities to improve.”

Dr Hiltrud Nieberg, Director, Thünen Institute of Farm Economics

“I was invited to join the panel of experts in the development of the Milkmaster Programme. It’s interesting to see how DMK has developed in the last year and is focusing on the future in order to be able to pay competitive milk prices. I’m impressed by the way DMK involves its members and, for example, has developed Milkmaster with the involvement of the farmers. It now seems to me to be important to trans-fer this enthusiasm to all the members. DMK can get even better at informing its members about the developments that lead to deteriorating milk prices.”

Dr Bianca Lind, Managing Director, German Cattle Breeders Federation (ADR)

“I’m impressed by the committed way DMK GROUP is addressing the subject of sustainability. Congratulations! DMK 2020 is setting standards even on the international plane. We have worked with DMK on various innovation projects for some years now. We’re now looking forward to seeing how the company integrates sustainability into the innovation processes.”

Dr Torsten Hemme, Managing Director, IFCN Dairy Research Network

21




In times of intense competition on volatile markets with

increasing milk volumes, DMK GROUP is consistently

placing dependence on the good name and quality of

its branded products. German quality with agricultural

origins in combination with innovative technologies and

a rigorous customer focus is the basis for opening up and

developing German and international markets. Together

with high flexibility in using the raw material, this will

allow the company security, profitable growth and long-

term earning power. As a result, DMK will generate added

value for customers, shareholders and employees.

DMK and its brands impress the world:

In the area of fresh dairy products and ingredients,

DMK develops tailored products for the German and

international markets and individual customers to

be able to respond flexibly to market fluctuations

even in the face of increasing milk volumes.

With strong innovative powers and consistently advanc-

ing internationalisation, DMK presents itself to existing

and new customers as a high-performing, competent

and reliable partner.

To guarantee top quality, DMK researches, develops and

tests all processes and products with the help of the

latest technologies and integrated quality management

and quality assurance systems.

As a food manufacturer, DMK takes responsibility for

the impact of its products and production processes

on man and the environment.

Best products for international markets

Business and customers22

23

24 Brands and products28 Innovations30 Internationalisation32 Product responsibility

Brands and products

Best products for international marketsDMK GROUP can look back on a good year in the branded products business despite the volatile market situation. The record quantities supplied to important export coun-tries and the significant decline in demand because of the embargo on Russia and high stocks in China put prices under pressure.

Nevertheless, 2014 was a successful year for the Olden-burger export brand. The brand enjoys a high level of acceptance with consumers in around 100 countries all over the world, and stands for quality Made in Germany in dairy products, cheese and milk powders. The relaunch of the design, repositioning and the expanded product range made decisive contributions to the significant growth in sales.

DMK GROUP can supply the German and international markets with a wide range of high-quality products which the company and its subsidiaries distribute through a number of strong brands to customers in retailing, food manufacturing and the hotel and restaurant sector. With brands such as MILRAM, Oldenburger, Humana and Biolabor, the company has positioned itself successfully in the year under review as a reliable, high-quality player in a number of markets in the cheese, fresh dairy products, ingredients, baby food, ice cream and health products segments.

MILRAM brought Brazilian flair to the chilled cabinets just in time for the football World Cup, presenting the MILRAM buttermilk drink Ipanema and MILRAM SalsaQuark curd. Both were major hits, making it a certainty that DMK will add SalsaQuark to its existing range of savoury curds.

DMK successfully expanded the branded goods business in the year under review with MILRAM, its core brand. Bucking the general market trend, the strategy of a broad and attractive product portfolio and the relaunch of the brand image ensured highly positive growth.

Brand awareness in the reporting period was over 90 percent.

With white line products like MILRAM FrühlingsQuark herb curd and MILRAM fruit buttermilk and yellow line products such as MILRAM Burlander, Müritzer and FrühlingsKäse cheeses, DMK is the only cooperative- based dairy company to offer retailers the full range.

Despite the fiercely competitive environment, the branded products business with MILRAM fresh dairy products and cheese grew in 2014 and market leadership in the area of herb and savoury curds was further expanded.

MILRAM strategy is bearing fruit

24 Business and customers

Brands and products

“In close collaboration with retailers, we are constantly

optimising our shared value added to expand our profitable

growth. It helps that MILRAM shoppers have above-average

confidence in their brand.”Matthias Rensch, Head of Brands Business Unit

In its German home market, DMK GROUP was also well placed with the profitably growing MILRAM core brand for grocery retailers and bulk consumers. The year 2014 was marked by increasing milk volumes in the first half of the year and in the second by much tougher price and competitive pressure, particularly in the yellow line (cheese products). In this challenging situation, the DMK brand successfully held its own as the key player in the white line, i.e. drinking milk, milk drinks, yoghurt, cream and curd products and desserts. MILRAM was the only full-line retail supplier to record an increase in growth. DMK also achieved profitable growth with the successful regional brand Osterland in the reporting period.

With regard to the brands and products, DMK’s strategic focus also continues to be on profitable growth and the optimisation of value added. Actions taken in the period under review include the further development of the dis-tribution structure in Germany. Here, DMK is using a new structure to concentrate even more strongly on the focal distribution channels for key accounts in retailing, food manufacturing and the hotel and restaurant sector. This change also contributed to 2014’s healthy performance.

Globally successful with ingredientsThe strategic growth area of Ingredients also displayed a positive trend in 2014. In this segment DMK supplies food manufacturing customers with five product groups: milk powders, dairy products, whey products, non-dairy products and feedstuffs. In 2014, DMK once more impressed customers in the milk powders segment with the high quality of the merchandise it produced from its own milk rather than externally sourced concentrate.

The area of dairy products, in which DMK supplies butter and speciality butter products, for example, as well as customised products in containers for further processing, posted sales growth of 20 percent in the reporting period. Subsidiary wheyco processed up to 4 million litres of whey into whey protein concentrate, lactose and perme-ate powder during the year, serving food manufacturers and other customers. The company’s capacity utilisation is very high and it is steadily developing its product portfolio further. It almost doubled its production volume in 2014 after the market launch of its whey protein concentrate WPC 80. DMK manufactures feedstuffs from its own milk powder, and expanded its position as the northern German market leader in this segment in the year under review. DMK subsidiary DP Supply is an inter-nationally leading player in spray-dried non-dairy coffee whiteners and fat powders. ArNoCo, a joint venture of DMK Group and Arla Foods Ingredients, also started pro-duction of whey protein concentrates in Nordhackstedt in 2014.

You will find further information about

the DMK brand portfolio at

www.dmk.de/en/brands/

25


Business and customers

Brands and products

Future-oriented quality assurance systemsDMK’s integrated quality management system is based on DIN ISO 9001 specifications and complies with the rules of the International Food Standard (IFS) and the British Retailer Consortium (BRC). The factories’ extensive certification enables DMK to meet the criteria for com-peting in the international arena. We also have organic certification in accordance with the EU regulation on organic farming in order to meet certain customer requirements. DMK is QS-certified for the sale of feed-stuffs such as skimmed milk powder. The company also meets specific nutritional requirements with kosher- and halal-certified dairy products.

DMK has used QM-Milch as its internal quality assurance system since the year 2000. Since the dairy farmers are also integrated in the system, it guarantees a uniform quality of the raw material. In the context of DMK 2020 the company regularly checks what proportion of dairy

farms are externally audited and, in the future, what proportion of first audits is completed successfully. 100 percent of farms were audited in 2014.

The central quality management department is respon-sible for handling cross-functional issues in this area and supports the annual certification processes. Internal audits by DMK are supported by external auditors. All procedures and processes form part of the Integrated Management System (IMS).

Internationalisation and an organically grown corporate structure demand standardised quality assurance and a continuous optimisation process. Together with the factories’ QA departments, central quality assurance takes care of the rules for criteria and test procedures. These are binding on all factories and cover, for example, the application, harmonisation and improvement of lab analyses and the integration of new measuring systems.

Maximum quality and safety

DMK GROUP applies the strictest criteria to its dairy products and manufacturing processes. From the farm to the supermarket shelf, the company ensures the highest quality and safety standards along the entire value chain. In the area of product safety, for example, this includes the HACCP (Hazard Analysis Critical Control Points) con-trol system, a preventive management system for assess-ing the hazards and risks of processes and products. The comprehensive HACCP concept checks the possible health and safety impact and improvement potential of all products in every step. It is applied from the develop-ment of the product concept, research and development, certification, manufacturing, production, marketing and

sales promotion to storage, delivery, usage, maintenance, disposal, and reuse or recycling. Product safety standards and appropriate labelling are demanded and applied for all raw materials and finished products used within DMK GROUP. They relate to, among other things, the origin of product components or of ser-vices and to composition – this applies in particular to materials that could have an impact on the environment or society and to the safe use of the product or service. The effects on the environment and society are not fully incorporated in the product labelling.


Brands and products

The company has included the issues of quality and prod-uct safety in DMK 2020 as fields of action in the area of Milk. The goal of concluding a quality assurance agree-ment with all subsidiaries was reached in the reporting period.

Awards and distinctions such as those of the DLG (German Agricultural Association) are important for successful quality assurance. In 2014, DMK received a total of 324 DLG medals across all sites: 204 gold, 107 silver and 13 bronze.

Competition requires strong brands This clear quality focus is also one of the defining strate-gies with which DMK GROUP is positioning itself in the current year’s saturated domestic market, which is under severe competitive pressure in the white and yellow lines in particular.

Particularly in competition with retailers’ own brands, only strong brands can make their mark. DMK therefore continues to focus on attractive brands and product port-folios. The implementation of the MILRAM relaunch in a number of channels is making a contribution to this, com-municating the brand core of “home, freshness, commu-nity and authentic taste” with appropriate imagery. The integration of Ravensberger products under the strong MILRAM brand umbrella, which started in December 2014, will also reinforce MILRAM’s position as one of the strongest brands in fresh dairy products. By adding the successful regionally established Ravensberger desserts and butter tubs to the MILRAM portfolio, DMK will be able to exploit the potential of the MILRAM brand much better in future and significantly increase the market penetra-tion of Ravensberger products.

DMK brands

27



Brands and products

Innovations

Systematic innovation managementThe innovation management system implemented at DMK in the year 2011 follows the concept of networking. It initiates, manages and networks innovation initiatives for products, processes, business units, markets or pur-chasing sources along the entire value chain to the point of implementation. In past years, the company has suc-cessfully built and established an innovation process which incorporates all business areas from production through marketing, controlling and business develop-ment to sales. The company’s innovativeness is strength-ened by the active generation of ideas in the context of creative and knowledge transfer workshops with inter-disciplinary teams and the integration of external part-ners. Innovations at DMK are not only new products, but also new business areas and models, new technologies, procedures and processes, new ingredients for product manufacturing and new packaging materials.

Our shared efforts also bear tangible fruit externally: The cup wraparound launched in 2013 is a result of this process, as is the MILRAM FrühlingsKäse that was successfully placed on cheese counters in the year under review (see box page 29).

Innovations through R&DA central business area is the research and development department (R&D). DMK GROUP invested heavily in its development in the reporting period – in joint research with universities, additions to the staff and also in equip-ment such as an experimental tower and filtration tech-nologies. On the one hand, R&D supports the optimisa-tion of the manufacturing processes, and on the other it

works together with innovation management in consul-tation with various parts of the company to develop a wide range of projects of major importance to the DMK’s future business success. The goal behind the investments is to help boost the company’s long-term performance in turnover, profit and good milk prices with the quality improvements, product innovations, optimised processes and new technologies that are constantly required.

Quality through innovative processesThe theme of innovation at DMK is by no means limited to the development of marketable and profitable products. Innovation also means optimising processes. For example, the company and external partners worked intensively in 2014 on a pioneering SAP industry solution. Innovation management and R&D also made a substantial contri-bution to the major investment projects in production in the reporting period. With new plants such as the moz-zarella cheese factory in Georgsmarienhütte and the milk powder tower in Zeven, DMK does not just go for off-the-peg solutions, but works with process engineering devel-opers to make a thorough up-front examination of the technology used.

It is important to keep developing processes further, particularly in the area of DMK INGREDIENTS. By targeted investments in state-of-the-art technology, DMK posi-tioned itself last year as a strong partner who develops products tailored to market demand together with customers from the food manufacturing industry. With high-quality, constantly available raw material and profound expertise, DMK serves the customers’ fast inno-vation cycles.

Innovations are critically important to the successful further development of DMK GROUP. This is why the word “innovative” is anchored as a core value in the company’s vision alongside “entrepreneurial” and “fair”. DMK brings this value to life with innovations along the entire value chain – from milk production through development and further processing to product marketing.


Innovations

“Innovation is everyone’s responsibility so that we can shape

the company’s future together and add value.”

Barbara Siegert, Head of Innovation Management Staff Department

DMK increased awareness of the new product with an emotive TV spot and also encouraged consumers to buy MILRAM FrühlingsQuark.

MILRAM cheese’s market growth in the self-service segment in the year 2014 proves that the successful introduction of FrühlingsKäse has had a positive impact on the entire product range.

The goal of innovation management is to make sustainable contributions to DMK’s profitable growth with innovations of lasting value. One result of the work of the staff department that was set up in 2011 is, for example, MILRAM FrühlingsKäse, which DMK CONSUMER launched on the market as a logical extension of the successful "FrühlingsQuark family".

FrühlingsKäse has also been available on the cheese counter since March 2014.

The cheese with finely harmonised herbs puts a fresh taste on bread and adds a touch of class to salads.

The pack design and flavour profile, which is based on the savoury curd market leader MILRAM FrühlingsQuark, exploits product awareness and tempts consumers to make trial purchases.

Innovations support profitable growth

Quality management also plays a central role here. DMK added human resources in that area in the reporting period and defined processes that will always ensure the latest state of the art and best possible quality, from the farmer to the customer, in all new and further develop-ments. The company also implemented numerous audits and certifications in this area in 2014.

Innovations and sustainability All departments work together to support sustainability in a structured community. The DMK 2020 Sustainability Strategy contains the goal of promoting sustainability- related innovations. In concrete terms, the company wants to have a set percentage of innovation projects that are relevant to sustainability by the year 2020. DMK is therefore successively developing criteria for taking sustainability aspects into consideration and integrating them into the innovation process.

Further information on innovations as a

driver of DMK’s business is to be found at

www.dmk.de/en/innovation/

29



Innovations

Internationalisation

Expansion in growth marketsDMK’s internationalisation focuses mainly on countries which cannot cover their demand for dairy products themselves in the medium or long term. Continuous expansion of the business in growth markets outside Europe is of central importance to the company’s short-, medium- and long-term earning power. In the period under review, milk volumes, which had already increased in the run-up to the end of the quota system, and the turmoil in the market caused by the embargo on Russia clearly showed the importance of robust alternatives to traditional markets.

Non-European strategic focus is working out DMK’s continuously strong export sales document the success of its internationalisation strategy, concentrating with top German quality on new markets in eastern Europe, Asia, the Gulf states, Africa and South America. A current example is the opening of the new sales subsid-iary in Dubai in the first half of 2015, which will in future combine and develop all business activities in the Gulf states, the MENA countries and Africa. Despite the absence at times of entire markets in North Africa, sales rose slightly by volume compared to the previous year and will continue to do so in the current year.

The subsidiaries in Shanghai now employ more than 20 people and helped to position DMK GROUP even more effectively in the Asian market in the reporting period, for example with the Oldenburger export brand. The brand

represents quality “Made in Germany” all over the world and grew strongly in non-European countries in the year under review. The Chinese market saw above-average growth dynamics in the first half of the year, with a sig-nificant dip in the second half. Although this led to increased pressure on prices and a temporary reluctance to purchase in the region, this development does not alter the long-term forecast of a high demand for imports. In south-east Asia, DMK was able to progress its market growth in the defined target regions despite stable demand.

This development is evidence that the strategy underpin-ning DMK’s internationalisation, of having the company’s own sales subsidiaries in key markets as well as sales offices and joint ventures, will deliver the desired growth effect.

New production facilities for the world market DMK also has its sights firmly set on internationalisation with its major investments in new production facilities. The specialty whey products from the whey processing plant which went into operation at the Nordhackstedt site in 2014 as part of the ArNoCo joint venture also particularly address international food manufacturing customers. A new mozzarella cheese factory at the Georg-smarienhütte site has also gone into production. DMK will produce 30,000 tonnes of different types of mozza-rella per annum there, intended for food manufacturers and international markets outside Europe.

DMK GROUP as a cooperative-based company owned by farmers has strong regional roots and, at the same time, as an international corporate group it continues to focus on growth in other countries. In view of widespread saturation in the German and European markets and an increasing demand for milk and dairy products world-wide, the goal of an increased presence in international growth markets continued to be a crucially important determinant of DMK’s entrepreneurial actions in the year under review.



“The products of DMK GROUP’s various brands are highly respected

by Asian consumers. We work every day to position products

with German quality even more successfully in

Asia’s growth markets.”Qianying Zhao, International Markets Executive Assistant DMK BABY

DMK INGREDIENTS strong partner for international customersIn the fast-growing ingredients sector, DMK last year continued a key account strategy aimed at growing inter-nationally along with its customers from the food man-ufacturing industry. DMK impresses these customers with the opportunity of sourcing high-grade German quality from a reliable partner in sufficient quantities. This is important because DMK can, for example, support its customers in their growth in different regions in a targeted way and can offer them a secure supply chain.

The potential supply volumes and expertise are of decisive importance to food manufacturers. The highly profitable special products that have been developed, in some cases together with the customers, made for healthy growth in the ingredients export business in the year under review.

In the year under review, DMK developed and imple-mented an umbrella brand strategy that is important to its international positioning. In doing so, the com-pany is responding to new requirements on the inter-national market and is communicating internally and externally at the Group and business area level a brand model which has as its core top quality of German origin, the company’s agricultural heritage and its commitment to responsible management. Part of the concept is a new corporate design that associates the business areas and subsidiaries with DMK GROUP at first glance. The business areas are now called DMK BABY, DMK CONSUMER, DMK ICE CREAM and DMK INGREDIENTS.

Improved visibility on the international scene

Further information about

internationalisation is to be found at

www.dmk.de/en/company/

facts-figures/

31




Product responsibility

Responsibility for dairy productsMilk and dairy products are healthy and popular foods that are enjoyed regularly by a large number of people. In the past years, stakeholders have paid increasing atten-tion to what the products are made of, how they are man-ufactured and what impact they have on the environ-ment and humanity. This product responsibility was one of DMK’s guiding concepts in creating the sustainability strategy.

The focus of the Milk sustainability area is on the prod-ucts. DMK concentrates here on four fields of action: the fields of quality and product safety dealt with in the chap-ter on brands and products (see pages 24 – 27) as well as value added and packaging. DMK pursues two goals relating to responsibility in the value chain: increased involvement of DMK suppliers in complying with social and ecological standards, and more sustainable sourcing of basic raw materials. While the focus will be on the first of these goals from the current fiscal year onwards, the second was the primary concern in the reporting period.

More sustainable sourcing of basic raw materialsDMK wants to procure five important basic raw materials from sustainable agriculture by 2019: cocoa, palm oil, wood, vanilla and sugar. Wood is used in composites, in transport packagings and as wooden sticks for ice lollies. DMK uses the other four basic raw materials in making dairy products such as desserts, yoghurt and ice cream.

In addition to top quality and safety, companies from the food industry which accept their corporate social responsibility are also expected to be deeply engaged with the social and ecological aspects of the products and their manufacture. DMK GROUP has brought topics relating to product responsibility under the umbrella of the Milk and Agriculture areas of the DMK 2020 Sustainability Strategy.

DMK 2020 MILK

Our aspiration

We will take responsibility for our

dairy products.

Value added

Quality

Product safety

Packaging

Fields of action

By 2020, we want to drive forward sustainability in the area of Milk with 12 concrete goals in the fields of action.The goals behind the fields of action and the status of goal

achievement in 2014 are to be found on pages 72 – 73.

Selected activities in 2014

Quality assurance agreement – goal achieved

Membership of UTZ and RSPO 324 DLG medals

Further information on the sustainability

area of Milk is to be found at

www.dmk.de/en/responsibility/

sustainability/milk/



DMK laid the foundations to meet this goal by joining UTZ and RSPO in the reporting period.

All DMK sites processing cocoa and palm oil will obtain multi-site certification in accordance with the UTZ and RSPO standards in the first half of 2015.

From 2015 onwards, the company will make the transition to the physical use of certified cocoa and palm oil step by step.

DMK already uses UTZ-certified cocoa and/or RSPO-certified palm oil at its Holdorf site and at DMK ICE CREAM.

Following a time-limited changeover process, DMK aims to use only cocoa certified according to the UTZ standard and palm oil certified according to the RSPO standard at all sites and at its wholly owned subsidiar-ies, wherever appropriate products are available. UTZ and RSPO are internationally recognised certification systems for the sustainable cultivation of cocoa and palm oil respectively.

Multi-site certification in accordance with UTZ and RSPO standards

Since these basic raw materials are used a great deal, DMK is working on a stepwise transition to more sustainable versions, starting with cocoa, palm oil and wood. Vanilla and sugar will then be on the agenda by the year 2019.

DMK wants to use only certified wood as a basic raw material as well in the future. The goal of a multi-stage transition is to use only FSC- or PEFC-certified wood-based materials at all sites within the foreseeable future, provided that these are available on the supply market. FSC and PEFC are recognised certification systems for sustainable forestry and forest management.

DMK has been purchasing FSC- and PEFC-quality wooden lolly sticks since the beginning of 2015. In the area of pri-mary packaging, it has already been able to use around 50 percent FSC-standard soft packagings used for com-posite carton packagings. In secondary packaging, the transition has already been made for cardboard trays, further materials will follow in consultation with suppliers and customers.

Focus on packagingThe subject of packaging will remain a key area of interest for DMK as a field of action in the sustainability area of Milk. Goals include reducing the environmental impact of packaging and developing alternative concepts. The company is currently setting up a system to assess the sustainability of packaging.

Cheese production provides an example of how to save materials in business processes. In the reporting period, DMK standardised and optimised the packaging for self-service cheese at all its cheese factories. The size of the packs was slightly reduced and waste from stamping was reduced using a film guillotine, among other things. In total, this project led to a permanent saving of 139,000m2 of top film and 132,000m2 of bottom film – an area the size of around 38 football pitches.

33




The valuable raw material milk is the foundation of DMK GROUP’s business

success. With the capital entrusted to it by shareholders, the company processes

the raw milk as efficiently and effectively as possible. From the cow to the super-

market shelf, the central focus is an environmentally friendly approach with good

welfare quality for the farm animals and continuous, innovative improvement

of technologies, processes and entrepreneurial concepts.

DMK secures the future of the dairy farmers and the company by:

resource-conscious and efficient production and marketing,

systematic quality improvements using state-of-the-art technology,

modern and efficient logistical solutions,

capacity expansions that will enable us to continue to process and market

all the milk produced by our farmers in the future,

support for the farmers and the quality they produce by providing help

on issues of conditions for keeping cattle, animal health and feeding,

systematic environmental protection at all sites with a particular focus

on energy, water, waste and logistics.

Out of responsibility for milk

34 Milk production and processing

35

36 Business environment and background38 Milkmaster Programme40 Animal welfare and environmental impact42 Environmental protection at the production sites

New market conditions Every year, DMK processes more than 6 billion kilos of raw milk. DMK plans around 800 collection routes per day to ensure that the collection of milk from the farms runs smoothly. The volumes of raw milk fluctuate depending on the region and the season.

Business environment and background

Avg. fatcontent

(%)

Avg. proteincontent

(%)

Deutsches Milchkontor eG 4.05 3.39

DMK contract suppliers 3.95 3.38

Raw milk from dairy farmers, excluding raw materials from member dairies

and associated companies

Volume of milk (mill. kilos)

171DMK contract suppliers

5,861Deutsches

Milchkontor e G 2014

The modern dairy industry makes an important contribution to regional value added and to the protection of biodiversity in areas used for agriculture. DMK GROUP wants to support its 8,900-plus dairy farmers in the environment of the new market economy conditions, since the ambitious goals can only be implemented by shared efforts.

production. The EU milk package which came into force in 2012 allows dairy farmers to decide how much milk they will produce and deliver without governmental influence from 2015 onwards. The DMK dairy farmers will decide freely on the quantity of milk they will deliver and will receive a guarantee that it will be purchased. DMK started strategic volume planning for the raw material with a small group of dairy farmers in 2009, and has continuously extended raw materials planning since then together with the dairy farmers. This will have a positive effect on efficiency and the environment, while at the same time the mutual obligations of supply and of acceptance are of crucial importance to a functioning cooperative.

Modern agriculture: good for humans and cattle Agricultural working conditions and production methods have changed fundamentally in the past decades, partic-ularly due to the modernisation and automation of indi-vidual processes, resulting in significant progress for humans, animals and the environment: technical devel-opments have made what often used to be very heavy physical work easier for the farmers and helped to improve milking hygiene, the protection of the cows’ udders and milk cooling and storage. Automatic feeding systems optimise animal nutrition and feed efficiency. The cubicle sheds that are now in almost universal use are good for the cows and for the people who work with them as well and combine economic criteria with good farm animal welfare. Progressive methods for removing manure from stalls reduce emissions,

As of 1 April 2015, the former milk quota scheme has become a thing of the past and the European dairy industry environment will be fundamentally altered by the transition from quantity restrictions to unlimited



intelligent control systems create good climatic condi-tions in the sheds, and biogas technology now allows liquid manure to be used for energy, leading to a signifi-cant reduction in energy consumption and environmental pollution.

During the year under review, a large number of visitors received information about life and work on modern farms and talked to the farmers at the nationwide farm Open Days.

Regional diversity and protection of biodiversityBecause of the dairy cooperative’s scale, DMK encom-passes a large, heterogeneous production and collection area. It is important to DMK to preserve the individuality of the regions and farms, since this enriches the culti-vated landscape and society and strengthens both the agricultural sector and value added in rural areas. The company is working to achieve a greater acceptance by society, particularly consumers, of the conditions govern-ing present-day production methods and to establish respect for the farmers’ daily work.

DMK recommends its dairy farmers to allow their cattle to move freely on pasture as far as circumstances on their farms allow. However, the one hundred percent pasture feeding desired by consumers would lead in Germany to many goal conflicts between social expectations, agricultural practice, animal welfare and environmental protection. Even in the future, it will not be possible to

give all cows the opportunity to graze on pasture in every German location. Besides the fact that not all farms have suitable pasturage available nearby and that the cattle’s welfare could be affected by rain, wet and wind, the metabolism of dairy cows also poses a problem: it makes complex demands on the composition of their diets which are not always satisfied by pasture feeding, since the composition of the ingredients and the nutrition pro-vided fluctuate considerably depending on the season and the weather, presenting a risk to the animals’ health. Dairy farmers therefore often deliberately choose to accommodate their cattle all year round in high-welfare indoor systems with contemporary feeding technology.

In addition, biodiversity is important, because the areas used in agriculture perform a wide variety of functions. Grassland and crop rotation enrich nature and the envi-ronment, and milk production is particularly closely asso-ciated with the use of grassland. Permanent grassland stores large volumes of carbon in the grass plants and in the soil, and commonly used pasture systems promote the formation of humus in the soil. An important con-tribution to climate protection and to maintaining biodi-versity is made by managing grassland and maintaining balanced crop rotation on the land that farms use for animal feed.

“The dairy industry in Germany is confronted with a number

of challenges – we are addressing them actively at DMK GROUP.”

Wilfried Nunnenkamp, Technical Communication/Milkmaster

37


Milk production and processing


Milkmaster Programme

Milkmaster for a successful futureThe Milkmaster Programme is an initiative by dairy farmers, for dairy farmers to promote working and production methods in agriculture that are in harmony with the highest standards of responsible milk production. The implementation programme for the years 2015 to 2020 that has been developed by dairy farmers and DMK employees creates an incentive to review the routine work of the farms regularly, to improve it and to further develop it in the interests of all dairy farmers.

The Milkmaster Programme’s holistic approach takes all aspects of milk production into account, strengthens the farms and the cooperative alike and secures a leading role for DMK. The programme is intended not only to improve the company’s external image, but also to posi-tively influence the farms’ business position by delivering economic benefits, for example through the bonus system, or improved animal health as a result of on-site consultancy.

The Milkmaster Programme plays an important role in realising the DMK 2020 Sustainability Strategy. Many of the strategy’s goals can only be reached in collaboration with the DMK dairy farmers, because the goals affect the farmers directly and the latter’s contributions are essential to the goals’ successful achievement. The Milkmaster Programme published in 2014 is the answer to a shared challenge.

The modules of the Milkmaster Programme

Public Relations

Codex

Research projects

Expert panelReport

Confirmation Advice Bonus



“Milkmaster sets standards for responsible milk production – as a result, we are always thinking

one step ahead.”Bernd Pils, dairy farmer

Ambitious implementation programme for dairy farmers The different elements of the Milkmaster Programme build on one another and are interlinked. The foundation is the Milkmaster Code, from which the Milkmaster Report is derived, providing the platform for the imple-mentation of confirmation, advisory and bonus systems. The Programme is supported by public relations work with a variety of communication campaigns. In addition, DMK conducts research projects that examine novelties and trends critically for relevance and practicality: the Expert Panel is made up of scientists and business experts, provides continuous feedback on the contents of the Milkmaster Programme and picks up on ideas and trends from the dairy industry at an early stage.

Implementation launchedAt the beginning of 2015, all dairy farmers received a Milkmaster File containing the most important informa-tion and materials about the programme. From April onwards, they will be able to complete the Milkmaster Report which describes their current situation. Auditors will compare the Milkmaster Report with the actual sit-uation on the farms in QM-Milch audits every two years, starting in 2016. Initial pilot audits will be conducted in 2015 to guarantee smooth procedures from 2016 onwards. If necessary, concrete improvements will be developed within the advisory system, with consultants answering questions about milk quality and milking hygiene. DMK is building a Milkmaster network of spe-cialists and institutions for special advice on specific top-ics relating to hoof and udder health, cowshed architec-ture, environmental protection and resource efficiency. Specialist forums and online seminars will serve as infor-mation platforms.

The development of the Milkmaster Programme

2012: A dairy farmers’ committee, DMK Sustainability Management and the Agricultural Affairs department work on possible solutions to ensure optimum safety, quality, animal health and environmental compati-bility. The More Sustainable Milk Production Working Group names the DMK 2020 fields of action cow comfort, animal health, feed cultivation and feeding.

2013: The shared goals and focal points in the area of Agriculture are set forth in the DMK 2020 Sustain-ability Strategy. 50 percent of DMK dairy farmers take part in a voluntary survey of welfare, feeding and animal health.

2014: The working group is expanded to 24 dairy farmers and develops the key points of the Milkmaster Programme together with DMK Sustainability Management and various corporate sectors.

2015: Following presentation of the programme to the dairy farmers and the executive bodies of the cooperative and discussion with them in the autumn of 2014, implementation on the farms starts at the beginning of 2015.

DMK will collect all the relevant service data at www.webmelker.de. Farms with improvement potential will be able to develop with the help of Milkmaster. The programme therefore represents an opportunity for every single farm and will launch an optimisation process for all concerned.

39




Animal welfare and environmental impact

Proactive animal welfare as a foundation of our business Animal welfare has taken on added importance in the social debate. Proactive animal welfare has always been part of the basic foundations of DMK’s business. Healthy cows are crucial for high-quality milk. To achieve this, farming systems that offer the cattle comfortable cubi-cles, sufficient light, clean air and the right temperature are important. Every cow should have enough space and exercise and access to animal-friendly lying spaces in the cowshed. Both proper loose housing and pasture feeding can have a positive impact on animal health and welfare. DMK has included these points in the sustainability strat-egy and the Milkmaster Programme and offers farmers incentives to improve animal welfare further. The fields of action in the Agriculture area of the sustainability pro-gramme – cow comfort, animal health, feed cultivation and feeding – contribute to animal welfare and other issues of modern, sustainable dairy farming.

Animal health as a key to success Animal health is a key to the successful management of any farm. Routine activities include, for example, regular hoof care, cleaning the cubicles and replacing the bed-ding. Other important areas where animal health can be influenced are the rearing of young cattle, calving and, in particular, feeding.

Milk as a valuable natural resource remains the foundation of DMK GROUP’s entrepreneurial success. Since only healthy cows give high-quality milk, DMK is concerned with ensuring the cattle’s well-being. At the same time, the environmental impact of farming has to be reduced by good farm animal welfare, systematic health management, feed cultivation that is economical in its use of resources and appropriate feeding.

DMK 2020 AGRICULTURE

Our aspiration

We will improve the conditions in which our cattle

are kept and reduce their environmental impact.

Cow comfort

Animal health

Feed cultivation

Feeding

Fields of action

By 2020, we want to drive forward sustainability in the area of Agriculture with 12 concrete goals in fields of action.The goals behind the fields of action and the status of goal



Milkmaster Programme Methane-reducing feeding experiment Intensive dialogue with dairy farmers

Further information on the sustainability area

of Agriculture is to be found at


sustainability/agriculture/



Several feedstuff manufacturers and 23 dairy farms participated in the multi-month field experiment on the connection between feeding and methane production.

The new form of feeding reduces the formation of methane in the cow’s rumen. The project’s tasks included improving feed efficiency and optimising special feed recipes.

Methane production per litre of milk was reduced to varying extents on the farms. The experiment revealed not only the great importance of feeding management, but also the fact that a higher milk yield reduces the average methane output per litre of milk.

Methane is one of the most significant greenhouse gases worldwide. In Germany, agriculture – especially farming with ruminants – accounts for a share of around 8 percent of total emissions. In the year under review, DMK con-ducted a feeding experiment aimed at reducing methane in dairy farming.

Methane-reducing feeding experiment

Responsible use of feedstuffs Responsible feed cultivation is one of the DMK 2020 fields of action, as a central pillar of sustainable dairy farming. For dairy farmers, this means growing and feeding high-quality forage and also using more sustainable alternatives when employing imported feedstuffs.

A cow’s diet consists mainly of fibre-rich roughage (grass silage, maize silage, grass and hay). The remainder con-sists of energy-rich, low-fibre concentrates (grain, grain maze, rape) which is grown almost entirely in Germany with only a small share of imports. Imports of high-pro-tein forage crops such as soya beans from the continent of South America are coming increasingly under fire from non-governmental organisations and food retailers.

DMK engages intensively with the highly complex prob-lem area of feeding. Some DMK dairy farmers currently depend on imported feedstuffs to provide their cows with the nutrition they require. There is as yet a lack of solid, cross-regionally valid experience about alternative feeding strategies and reliable practical recommenda-tions on growing protein sources (e.g. legumes, peas, field beans etc.) under the given location-specific and climatic conditions in Germany. DMK participates in the discus-sion on imported feedstuffs through forums, contributes to round-table discussions and is in dialogue with repre-sentatives of the feedstuff manufacturers. In addition, DMK has among other things initiated its own research projects with the University of Giessen.

41




Environmental protection at the production sites

The basis: the environmental and energy management system With an environmental management system certified in accordance with DIN EN ISO 14001, DMK has established a standardised, recognised basis for continuous improve-ments in its environmental protection at the production sites. All production sites are also certified in accordance with DIN EN ISO 50001 and therefore have functioning energy management systems. The independent certifying body DQS audited and renewed the environmental management and energy management system in the year under review. In addition, DMK was awarded the “Green Company” certificate for its exemplary environ-mental and energy management system.

DMK developed and introduced a special programme in the year 2012 to assess environmental aspects and mea-sure its environmental performance. This programme made it possible to systematically record virtually all direct and indirect environmental aspects at the produc-tion sites and their impact, thereby ensuring continuous improvement of the company’s environmental perfor-mance. DMK underpins the potential environmental impact with preventive risk assessment and takes appro-priate, effective protective measures.

DMK has trained and appointed environmental and energy officers and personnel responsible for water and immission protection, hazardous goods and explosion protection as well as safety and fire protection officers and external company coordinators at its sites. A total of approx. 600 officers in the areas of occupational health and safety, environmental protection and energy and approx. 100 internal auditors qualified and/or received further training in 2014.

Environmental protection at the production sites is considered to be particularly important. DMK GROUP has defined four fields of action through which the company aims to improve its eco-balance: energy, water, waste and logistics.

DMK 2020 ENVIRONMENT

Our aspiration

We will improve the eco-balance

at our sites.

Energy

Water

Waste

Logistics

Fields of action

By 2020, we want to drive forward sustainability in the area of the Environment with 11 concrete goals in the fields of action.The goals behind the fields of action and the status of goal



Certification according to DIN EN ISO 14001 and 50001

Recyclable waste management at DMK sites Optimisation of the sewage treatment

plants at the Nordhackstedt and Zeven sites


of Environment is to be found at


sustainability/environment/



Activities in energy management Milk processing requires energy – for example, for drying in the production of milk powder, for homogenisation and ensuring products are sterile, for cleaning machinery and for cooling the products. The use of energy fluctuates, because it depends on various factors such as temperature, volume and product-specific parameters. For example, producing milk powder takes more energy than manu-facturing dairy products. Energy consumption in relation to the volume of milk rose slightly in the reporting period because the production portfolio shifted towards more energy-intensive products. Energy efficiency improved slightly compared to the previous year.

At present, DMK is reviewing a number of projects about climate-neutral energy generation, including the use of combined heat and power plants at the Altentreptow, Zeven and Strückhausen sites. In the 2013 report, DMK estimated that the goal of increasing its in-house power supply with regard to the volume of gas used to at least 50 percent by 2018 had been reached ahead of schedule. Because of a change in the method of calculating the goal, it was classed as "in implementation" in the current progress evaluation. Particular attention is paid to raising employees’ awareness and giving them training. The rules published in the year 2013 and repeated training courses on energy-saving provide guidance for staff members.

“The introduction of the energy management

system at all sites was a great success. Now we

have to implement the ambitious energy goals

in a joint effort.”Torben Hinck, Energy Manager

Direct energy consumption (kWh) 2013 2014 Change (%)

Total direct energy consumption 1 1,696,480,130 1,837,106,855 8.3

of which, direct energy from non-renewable energy sources 1 1,659,606,896 1,800,500,598 8.5

Electricity 324,878,945 345,391,103 6.3

Natural gas 1,224,369,481 1,237,293,027 1.1

District heating 130,064,599 137,476,466 5.7

Heating fuels refined from crude oil 1,843,011 82,414,928 4,471.8 1

of which, direct energy from renewable energy sources 2 36,873,234 36,606,257 – 0.7

Hydro power 616,672 542,123 – 12.1

Biomass 36,873,234 36,064,134 – 2.2

DMK + subsidiaries in which it has an interest of at least 75% (excluding Rosen Eiskrem), basis for the gathering of data on direct energy from non-renewable energy

sources are the volumes of energy purchased; basis for the gathering of data on direct energy from renewable data sources is the purchase/conversion

of wood consumption for biomass

1 From 2014 includes milk collection vehicles and the passenger car pool (diesel) and liquid gas, therefore no comparison with the previous year’s figure is possible2 Hydro power at the Rimbeck site, biomass at the Waren and Bad Bibra sites

43




Water management: focus on cleaning equipmentWater is needed in the manufacture of dairy products for cooling, cleaning and processing purposes. In the con-text of DMK 2020, DMK GROUP undertook to improve its specific water efficiency by 20 percent by the year 2020 compared to 2012 and to raise employees’ awareness of water issues. The use of fresh water has increased slightly since 2012 partly because the company has changed and expanded some production areas. It is much more water-intensive to produce fresh products than cheese, and the production of fresh products increased in the year 2014. Further efforts are needed to achieve the goals. Water efficiency measures were successfully imple-mented at a number of sites.

One focus in 2014 was on taking a structured approach to the issue of cleaning-in-place equipment (CIP), which is one of the biggest water consumers across the company. New technical processes offer opportunities to improve the efficiency of CIP systems’ water consumption. In order to tap these potentials to the full, around 55 CIP special-ists were trained in four specific areas of application in 2014/2015. This means that CIP specialists are now avail-able at all sites. In addition, two Master’s dissertations are being written for DMK on the subject of CIP optimis-ation, and further improvement potentials are expected from these projects. DMK also upgraded the sewage pre-treatment plants at the Nordhackstedt and Zeven sites to the state of the art and expanded the sewage treatment capacities.

Logistics as a core leverDMK aims to keep environmental pollution as low as pos-sible on the long path from collecting the raw milk from the farmers to delivering the finished dairy products to the customers. Our employees in milk collection, raw materials planning and logistics are primarily responsible for this. In route planning, DMK uses software to review and optimise efficiency and capacity utilisation in collect-ing the milk. Every day, the company calculates the most

efficient route and gives the drivers of the 800 milk collection tours precise instructions in order to reduce environmental pollution, time and costs. Another lever is to reduce fuel consumption, which is recorded every day per shift and per driver. Drivers are instructed to pay attention to low fuel consumption and adapt their driv-ing styles. They receive training in foresighted, fuel-saving driving.

DMK not only wants to be a reliable partner for retailers and food manufacturers in terms of quality, but also aims to set standards in safe and fast deliveries to its custom-ers. The customers’ requirements as well as economic and ecological aspects play a role in the decision as to whether DMK products are transported directly to the customer from production warehouses, or whether combined deliv-eries are made via the company’s central warehouses.

1.03Water/ milk ratio 1 (m3/t)

0.97Sewage/ milk ratio 1 (m3/t)

2013

2013

2014

2014

Fresh water (m3)

Sewage (m3)

2,427,008

2,614,965

5,124,078

4,379,434

7,551,086

6,994,399

7,748,859

7,329,775

2,713,961

2,624,379

5,034,898

4,705,396

Own water (well) External water 2

Direct supply Indirect supply

(DMK + 100% subsidiaries (excl. sanotact and Rosen Eiskrem)1 DMK + 100% subsidiaries (excl. sanotact, Rosen Eiskrem and dp supply)2 Water from the municipal water supply or other suppliers



To ensure optimum delivery, DMK regularly checks the storage and transportation structure and adapts it to current conditions. The central warehouse in Zeven and the cheese warehouse in Georgsmarienhütte were expanded for this purpose, the cheese warehouse in Dargun is currently being expanded and a central powder warehouse is currently under construction in Zeven. Extensions to the warehouses in Erfurt and Edewecht are at the planning stage.

The DMK 2020 goals also include the use of resource-friendly technologies in transport vehicles by the year 2019. In the reporting period, DMK has continued to work on switching over to weight-optimised milk collection vehicles throughout the fleet and driving forward the use of Euro 6 standard vehicles in its own fleet and at freight forwarders.

In the year 2014, DMK carried out analyses of co-mingled groups as part of the work on optimising the recycling management system.

In the year under review, DMK further expanded its recyclable waste management. The emphasis in recy-clable waste management is on avoiding waste as far as possible and optimising the recycling of recyclable waste.

DMK pursues these goals equally at all sites while taking the different conditions at the production sites into account.

DMK works on increasing the sorting quotas and therefore optimising recycling with an established container system, colour coding system and logistics system.

In order to tap into the technological developments on the market, the company cooperates closely with the recycling companies.

Expansion of recyclable waste management

Waste by handling method (%)

3.0 Disposed of

2.6 Disposed of

97.0 Recycled

97.4 Recycled

2013 2014

DMK + 100% subsidiaries (excl. sanotact, sunval and Rosen Eiskrem), waste life cycle analyses of factories, excl. animal by-products and sludge

Waste by type (t)

Recyclable packaging

Residual waste/household waste

Separators non-hazardous

Construction and demolition waste

Hazardous waste

Destroyed files

Other

0 300 600 900 1,200 7,100

45




46 People and commitment

A sense of fair community with employees and with partners in industry and

society stems from the company’s traditional links with the regions where

DMK GROUP is at home. The trust and security to be found in that community

are owing to our obligations as a cooperative and are embodied in many ways

by DMK – including outside its German home markets.

DMK practises a partnership-based community:

DMK cultivates its regional roots and close links with agriculture.

The company secures and develops jobs in the rural area, not only in the

DMK factories but also on the shareholders’ farms and for its business partners.

DMK is a modern employer offering its employees development opportunities

and a positive and secure working environment.

DMK gives young people the chance to gain qualifications and pursue

careers in an international environment.

DMK engages in research along the milk value chain.

A partner for employees, industry and society

47

48 Values and opportunities50 Employees54 Dairy farmers56 Region and responsibility

Values and opportunities

Pillar of our entrepreneurial success A good 7,400 people work at DMK. More than 8,900 dairy farmers ensure that the company is supplied with raw milk. These people form DMK’s team. In the DMK 2020 Sustainability Strategy, the company deliberately chose the term “team” to emphasise the united force of the groups of employees and dairy farmers behind our entre-preneurial success. Without the farmers there would be none of the valuable resource that is milk, without the employees at the DMK sites the high quality and product safety could not be produced for the customers. In the Team area of sustainability, four fields of action have been defined that centre on employees and dairy farmers: satisfaction, training, diversity and elected office.

Corporate culture anchored in the vision For a company like DMK GROUP that has developed with a cooperative structure out of several companies over the years and is still dynamically growing, a unified direction is of major importance. It is therefore one goal in the satisfaction field of action to further expand the values- based, sustainable corporate culture by the year 2015. The vision that was introduced in 2013 and systemati-cally further implemented in the reporting period points the way to the future with the core values entrepreneurial, fair and innovative. It illustrates the entrepreneurial mission in a clear and visionary way, that is, to make the best from the milk for the shareholders.

DMK GROUP is a values-based company. Respect and consideration are defining characteristics of our day-to-day community. As a dynamic and growing company, DMK champions equality of opportunity for the diverse group of people who work for the company.

DMK 2020 TEAM

Our aspiration

Together we will do our utmost to attain

long-term success for every individual and for DMK.

Satisfaction

Training

Diversity

Elected office

Fields of action

By 2020, we want to drive forward sustainability in the area of the Team with 14 concrete goals in the fields of action.The goals behind the fields of action and the status of goal



Top employer SMETA audits Membership of Alliance for YOUth


of Team is to be found at


sustainability/team/



Social standards at an internationally recognised level The SMETA audit is now of major importance in interna-tional business. More than ten years ago, a group of British retailers developed the SMETA (Sedex Members Ethical Trade Audit) guidelines for ethical audits specifi-cally for retailers and their first and second tier suppliers in order to achieve uniformity in their suppliers’ social standards.

Sedex (Supplier Ethical Data Exchange) is an organisation of companies that have committed to the continuous improvement of ethical conduct in their value chains. International food manufacturers number among these companies. They expect their global suppliers to accept being audited according to the SMETA standard, which embraces topics of importance to employees such as working guidelines and hours, occupational health and safety, and also the environment and corporate ethics in general. Two sites were re-audited and audits of six more successfully completed in the reporting period.

Diversity and equality of opportunity in the company In 2014, DMK made an agreement on the full integration of severely handicapped employees. The legislator sets the quota of disabled or equivalent employees at five percent. DMK voluntarily raised this to seven percent in its integration agreement. The company has increased the quota gradually over the past years – most recently from 5.8 percent to 6.3 percent in 2014. In addition, DMK runs several programmes in which it actively works to increase equality of opportunity for various groups of employees: young talents and older employees, women in executive positions and mothers or fathers on parental leave.

The vision meetings help to anchor the vision more firmly within the company. They are intended to build a fundamental understanding among DMK colleagues and to connect the core values and the vision with the actual corporate processes. By this means the core values will be integrated and actively incorporated into daily working routines.

In order to integrate the vision further within the com-pany, vision meetings have been held successively for all sites from October 2014 onwards. Vision meetings were successfully conducted at four sites in the fourth quarter of 2014.

An average of 10 to 15 people attend the vision meetings and exchange views about the core values and the vision.

The meetings are 60 minutes long. Employees have the opportunity to give feedback and to ask questions about the vision.

Actively embodying the vision’s core

entr

epre

ne

urial

fair

innovative

49


People and commitment


Employees

Top employer: aspiration and obligation DMK wants to offer its employees individual development opportunities, room for personal development and a good working environment. The workers’ satisfaction has risen steadily over the last few years and was confirmed once again in the period under review: in addition to its low turnover rate, DMK achieved more than satisfactory results for the third time in Focus magazine’s ranking of top employers. DMK is the industry leader among the best employers in the category of groceries and luxury foods, animal feed, drugstore articles and medical con-sumer products. The company also achieved a leading position in the overall ranking. Focus asked employees at 2,000 firms to assess their employers on the basis of surveys in 2014 for the study published at the beginning of 2015.

In view of demographic change, an attractive working environment and satisfied employees are crucial ele-ments of a company’s competitiveness. DMK recognised this fact early on and developed appropriate measures on a targeted basis. Its winning position among the large corporate groups in the groceries and luxury foods indus-try documents the success of its activities. One of the reasons for the excellent rating is the fair, partner-like way in which people are dealt with at the company. This stems to a large extent from its cooperative background, which

makes partner-like dialogue with employees and the acceptance and implementation of their ideas into guid-ing principles. Another central factor in long-standing employee loyalty is the career prospects that DMK has to offer. The company develops the individual potential, personal satisfaction and motivation of every single employee with specific training and continuing profes-sional development programmes.

Young talent and executive developmentDeveloping young talents is a key area. Here, DMK offers a broad range of opportunities for school-leavers, university graduates and emerging in-house talents. School-leavers, for example, can take apprenticeships in 14 different jobs, thus laying the foundations for profes-sional careers. In future, DMK is to expand the range of possible apprenticeships to 18 professions. The spectrum will not only be widened in the commercial and technical fields, but further trainers will be added as well. In the year under review, 260 apprentices were employed at DMK, corresponding to a trainee quota of 4.2 percent.

DMK joined the Alliance for YOUth in 2014. More than 200 companies, schools and policy-makers work together in this organisation to create jobs throughout Europe for young people under 30.

Motivated employees are crucially important to the business success of DMK GROUP. The company sees long-term engagement on behalf of the employees as part of its corporate responsibility. It places a high priority on giving employees the opportunity to develop continuously. DMK is address-ing the impending shortage of management employees with training measures at various levels. The company offers good career opportunities and at the same time makes sure that its employees are committed and happy. The result of such efforts is proven high job satisfaction.


Employees

Famous companies are included in the ranks of the initia-tive’s partners. The initiative aims to help young people in their search for work and offers application training and other facilities for this purpose. In the context of its commitment, which continues until the year 2016, DMK is planning to hire more employees under the age of 30.

Basis of the work DMK sets forth the company’s shared values and principles in its code of conduct. These are based on clear ethical and social rules for interpersonal conduct and compliance with

social and environmental standards. They apply without exception to management and every employee. The com-pany expects the actions of its business partners and sup-pliers to be based on guidelines that are compatible with the DMK Code. DMK will not tolerate any form of accep-tance of benefits, granting of benefits, bribery or corrup-tion. Should infringements by colleagues or managers nevertheless occur, intentionally or through negligence, employees can turn to the Works Council or the internal complaints office which DMK has set up in accordance with the general legislation on equality.

“DMK GROUP has a lot of exciting and individual opportunities for

continuing professional development, particularly for young talents.”

Christina Erke, Purchaser

DMK Starter Academy

DMK offers the student talents it supports internships and degree projects that run parallel to their studies. The company also set up the DMK Starter Academy in 2013 to train young executives. This special basic training is open to both young in-house talents and trainees and focuses on the individual development of interpersonal skills. For this purpose, DMK offers two-to three-day

training courses over a period of 18 months and expands participants’ knowledge of the company with information events and factory tours. The programme also encour-ages networking and expands horizons. 34 employees took part in the Starter Academy in the year under review, another group began in January 2015. In the light of increasing internationalisation, DMK is currently consid-ering implementing a bilingual programme.

51



Employees

Employees by type of employment contract 2013 2014 Change (%)

Total workforce 5,913 6,179 4.5

of whom, permanent 5,022 5,354 6.6

of whom, temporary 891 825 – 7.4

Permanent employees 5,022 5,354 6.6

of whom, full time 4,673 4,946 5.8

of whom, part-time 349 408 16.9

Employee turnover (%) 4.0 4.9 22.5

+ 6.9%2013

2014

Apprentices

243

260

+ 13.5%2013

2014

Severely disabled persons and equivalent

342

388

DMK + 100% subsidiaries (region: Germany and Netherlands)

As of 31.12.2014

– 6.7%2013

2014

Employees on parental leave

93 41 134

12589 36

Women Men

2013

2014

Age structure of employees

under 30 30 – 50 over 50

1,023

1,113

2,918

3,020

1,972

2,046

Total workforce by gender (%)

32.7 Women

32.7 Women

67.3 Men

67.3 Men

2013 2014


Employees

In addition, employees have an impartial external contact available to them in the form of an ombudsman who is bound to secrecy.

An important element in the implementation of the Code of Conduct is the whistle-blower system, which enables DMK to pick up on possible infringements of the law early on and prevent damage to the company’s assets and image in good time.

For security and health at the workplace Occupational health and safety occupy a prominent position in company policy, the Code of Conduct and the DMK 2020 Sustainability Strategy. DMK works together with its employees to ensure safety during work and healthy workplaces. The statutory accident insurance company for the food industry and related sectors (BGN) records accidents from 3 days’ absence upwards. DMK keeps stricter statistical records and performs stricter analysis of workplace accidents than is generally the norm and records accidents from one day of absence upwards. The goal within DMK 2020 is to reduce the number of accidents to zero by the year 2020.

To achieve this, occupational health and safety experts have worked out the key areas where accidents occur. Five working groups analysed the causes of accidents and prescribed measures for preventing accidents in future. By rigorously implementing these measures, DMK has been able to reduce the number of accidents in the reporting period by just under eight percent compared to the previous year. The accident figures have fallen in pre-cisely those areas which had previously been identified as key areas. The managers’ contributions were particu-larly important in the stringent implementation of the measures, primarily because of their role model function, praise for exemplary conduct and the way that they drew attention to unsafe actions. The majority of accidents in production are behaviour-related. Employees at all loca-tions therefore have to be involved in a company- wide, comprehensive safety culture.

– 7.9%2013

2014 1

Total accidents

252

232

DMK + 100% subsidiaries (excl. sanotact, sunval, dp supply and wheyco),

accidents from 1 day’s absence upwards1 DMK + 100% subsidiaries (excl. sanotact, sunval, dp supply and Rosen Eiskrem)

– 16.7%2013

2014 1

Accidents per 1 mill. working hours

36

30

The process for changing attitudes and behaviour in occupational safety is now established at four locations and will be extended step by step to the whole company by 2020.

DMK introduced a hazardous substances management system in 2012 which now covers 98 percent of all haz-ardous substances and underpins them with operating instructions and safety data sheets. For sites where milk powder is handled in big bags and sacks, the company implemented a loading safety concept with associated online trainings in the year under review which is based on an expert report specifically prepared for DMK. In addition, the company-wide skin protection plan and the gauntlet concept was revised, high-quality hand protection products to protect people’s skin are used as standard at DMK.

DMK employees have the opportunity to contribute ideas on improvements in operational processes in the context of a company suggestions system. Employees and the company share the benefits of these ideas.

53



Employees

Dairy farmers

Shoulder to shoulder with the dairy farmers The dairy farmers identify with DMK to a high degree. For example, a survey in which more than 2,200 dairy farmers participated in the year under review confirms that they are highly satisfied with DMK. Almost three quarters of DMK members feel that they are kept well informed and agree with such statements as: “I am proud to be a DMK dairy farmer,” “DMK looks after its dairy farmers,” and “DMK is a fair partner”.

From the German fertiliser ordinance to the animal husbandry ordinance, agriculture features a wide range of regulations with which DMK’s dairy farmers have to comply. The dairy farmers are helping to shape the DMK

2020 Sustainability Programme in a committed and professional manner – successful implementation is only possible together with those same dairy farmers. The launch of the Milkmaster Programme took priority in the reporting period (see pages 38 – 39). The Milkmaster Pro-duction Code serves the dairy farmers as a guideline for their actions. It must be taken into account here that the members of the cooperative make the decisions for their farms individually in accordance with their different needs and under their own responsibility. DMK encour-ages all dairy farmers to adopt sustainable production and supports them in implementing it. Change requires not only time, but also incentives, and it has to be care-fully thought through. For example, the dairy farmers themselves bear the cost of changes – for example, con-version to modern cubicles – and have to plan for finan-cial risks. At the same time, in the public debate, which is often marked by a highly romanticised image of agricul-ture, the farmers’ efforts are often criticised from the start as inadequate or too slow. However, the guiding thought of sustainability demands that processes should be designed for future-proofing, and that changes should not stop at immediately visible cosmetic improvements. The DMK 2020 Sustainability Programme and the sup-port for implementation by the farmers represented by the Milkmaster Programme are focused on such signifi-cant and meaningful long-term changes.

Good milk prices: crucially important to dairy farmersMilk prices are a crucial guideline for DMK: the milk prices determine the dairy farmers’ income and DMK GROUP’s business success. This is why one of DMK 2020’s goals is to generate competitive milk prices every year. At

With a good 8,900 dairy farmers, DMK GROUP is one of the major dairies in Europe organised on a cooperative basis. The dairy farmers are the backbone of the cooperative and the business. DMK supports the dairy farmers in important issues and at the same time makes efforts to improve the attractiveness of farming as a profession. DMK places a high priority on continuing professional development for the dairy farmers.

Dairy farmers (number)

77DMK contract suppliers

8,826Deutsches

Milchkontor e G 2014

Avg. volume of milk per farm

(1,000 kilos)

Deutsches Milchkontor eG 664

DMK contract suppliers 2,208

Annual average


Dairy farmers

36.86 eurocents per kilo of milk, the average milk price was in line with that paid by comparable dairy companies in 2014. However, decent milk prices do not only deter-mine the income of the farmers and their families. They are also the relevant benchmark for the farms’ capital investments and the basis for further value added in the regions. These factors explain the DMK 2020 goal of paying a competitive milk price every year. In addition, a key issue in the Milkmaster Programme is to improve the cost-efficiency of the different farms in such a way that the milk prices provide a good income today and enable forward-looking investments.

Top priority for dialogue The intensive dialogue between the dairy farmers and DMK contributes to optimised cost-efficiency on the farms. The exchange of views about production con-ditions and working methods on the farms is a fixed element of the cooperative. It supports the further devel-opment of all dairy farmers and makes it possible to con-tinue to meet society’s requirements on responsible dairy

farming in the future. In the period under review, DMK distributed the 80-page Milkmaster File with the Produc-tion Code and other information to all 8,900 dairy farmers for the launch of the Milkmaster Programme. As a sup-porting feature, the regular information events offered the opportunity to exchange thoughts about the new requirements.

DMK also explored the possibility of increased training using new media in 2014. The Young Dairy Farmers’ Work-ing Group trialled an online format: the young farmers met virtually for a two-hour seminar about internation-alisation, listened to a speech and were able to discuss with colleagues all over Germany. The format enjoyed major resonance. The important area of continuing pro-fessional development needs to have a good effort to benefit ratio in the dairy farmers’ daily working routine. Webinars are easy to integrate. Against this background, DMK would like to expand such formats in future.

63 DMK vor Ort (“DMK on site”) events were used to provide information and conduct a discussion about relevant topics.

Votes on important issues were conducted at 35 District Assemblies.

The weekly magazine Milchwelt (“Milk World”) once more provided a reliable information platform.

Dairy farmers can download and update their farms’ delivery data and keep up to date with developments at DMK on a daily basis on the Webmelker (“Web milker”) internet portal.

The Regional Managers and consultants support the farms individually on business and agricultural issues.

In the year 2014, DMK continued its intensive dialogue with the dairy farmers and enabled an exchange of views through a variety of channels:

Intensive dialogue through various channels

55



Dairy farmers

Region and responsibility

In dialogue with stakeholders The dialogue with stakeholders is of major importance to DMK. In the reporting period, DMK employees took positions in the discussions about sustainability and other issues of importance to the dairy industry. For example, DMK was represented at the DLG Winter Con-ference in Munich with a presentation on “challenges and complexity along the milk value chain”. DMK employees gave speeches at professional events on the development of the milk market after the end of the quota system and on the practice of quality management. The company contributed to the 20th International Summer Academy of the German Federal Environmental Foundation (DBU) on sustainable agriculture with a speech on “practical answers to what customers want”. DMK presented the Milkmaster Programme at a conference held by a German retail company. DMK is in dialogue with environmental organisations and feedstuff manufacturers at a number of round tables.

DMK makes a real difference in the regions DMK has always engaged with the regions in which it has production sites and where the dairy farmers are based. With DMK 2020, more projects to strengthen regional attractiveness are planned for the future. At the moment, the focus is on the “Freiwillig und unbezahlbar” (“voluntary and beyond price”) campaign, which supports employees in their voluntary commitments. The intention is to sup-port twelve employees and their organisations every year. Last year, for example, this included an employee who has espoused the cause of supporting seriously ill people. She does voluntary work for a hospice which invested the

DMK GROUP is closely integrated with society. Particularly in the regions in which it has production sites and where its dairy farmers are based, the company and its employees engage with society. For DMK, one important element of taking social responsibility is the formats of its dialogue with different stakeholder groups. Promoting research into dairy industry issues also plays a major role.

DMK 2020 SOCIETY

Our aspiration

We will support the regions

we operate in.

Dialogue

Dairy competence

Research

Engagement

Fields of action

By 2020, we want to drive forward sustainability in the area of Society with 11 concrete goals in the fields of action.The goals behind the fields of action and the status of goal



DMK Scholarship Programme Promoting research “Freiwillig und unbezahlbar”

(“voluntary and beyond price”) project


of Society is to be found at


sustainability/society/



donation in employee training. Another employee works on behalf of under-age refugees. The association cham-pions their rights and the mentors each help one person to arrive in the city and integrate into everyday school life.

Good start to DMK Scholarship Programme In 2013, DMK initiated a scholarship programme for international young talents in the dairy industry, to enable young people to get practical insights into dairy farming and milk processing which they can apply in their home countries. Its partner in this initiative is DEULA Nienburg, which offers a comprehensive training pro-gramme specialising in agricultural subjects.

DMK welcomed the first scholarship holders in 2014. Three young woman and one man from Russia completed the six-month programme – four months’ practical work on DMK dairy farms and two months’ work at a production site and at administrative headquarters. The scholarship holders were able to take away valuable impressions of the modern, responsible dairy industry in Germany for their agricultural education in Russia.

Four scholarship holders from outside Germany are now to complete the programme every year. Another scholar-ship holder every year will receive support in taking a Bachelor’s degree at the Jacobs University in Bremen, combined with practical internships at DMK’s head office in Bremen, DMK production sites and the Milk Innovation Center (MIC).

Research projects: “Energy and climate efficiency in the dairy industry through the intelligent coupling of energy flows”, “Sectoral and national economic effects of EU strategies to limit high-protein imported feedstuffs or to switch to non-genetically modified feedstuffs of domestic origin”

Master’s projects: “Sustainability in the German dairy industry, with particular consideration for the integration of the raw milk producers”, “Dynamic capabilities and sustainable supply chain management”

Bachelor’s projects: “Analysis of the sources of the occurrence of B-grade goods (“seconds”) in the area of food manufacturing, particularly in the production of dairy products, and problem-solving approaches to preventing them”, “A new DMK Eis manufacturer brand in the international ice cream market – analysis of the most suitable positioning and brand strategy”

As a large German dairy company, DMK participates in research projects to develop the dairy industry further and in sustainability projects. Our research support focuses particularly on feeding, good farm animal wel-fare and resources and the climate as well as sustain-ability management and dairy industry issues. DMK also supports Bachelor’s and Master’s dissertations in these areas. In the year under review these included:

Supporting research

57




Extract from the Deutsches Milchkontor eG Group Management Report 2014

Industry developmentAccording to figures from the Federal Office for Agricul-ture and Food (BLE), consumption of drinking milk fell in 2014 year on year by – 0.6 percent to 5.0 million tonnes. While dried milk (+9.2%) and yoghurt products (+8.3%) achieved significant growth, the production of butter and cheese rose only slightly, at 1.9 percent and 1.3 percent respectively. The manufacture of buttermilk products fell sharply, by – 8.7 percent. The higher volumes of milk deliv-ered are attributable to rising milk yield and growing dairy herds. The dairy industry’s sales rose in 2014 year on year by 2.1 percent. Around one quarter of these sales were earned outside Germany. The average price of con-ventionally produced cow’s milk with a fat content of 4.0 percent and a protein content of 3.4 percent (ex farm) was at the previous year’s level on an annual average according to our own estimates, but fell significantly over the period, from 40.22 eurocents per kilo in January to 31.04 eurocents per kilo at the end of the year.

Group developmentDuring the reporting period, DMK completed the factorystructure concept which was launched in 2011. Following the relocation of plain curd production to Zeven and the construction of a new cheese factory in Georgsmarien-hütte, DMK took targeted measures to upgrade dessert production in Erfurt and plain and herb curd production in Zeven. DMK started to increase production and produc-tivity with the “Total Productive Management” project at the fresh cheese-making plant in Zeven and the butter factory in Edewecht. Total Productive Management, as a holistic, process-oriented management system, aims to improve all business processes and will be rolled out successively at all production sites.

In 2014, DMK realigned its baby food subsidiaries and formed the DMK BABY subgroup. DMK Baby GmbH acts as the subgroup parent for all subsidiaries involved in making or trading in baby food. These include not only HUMANA GmbH but also Sunval Holding GmbH, which was acquired in 2012.

DMK’s milk intake rose slightly by 51,000 tonnes. The raw milk delivered had a protein content of 3.4 percent and a fat content of 4.0 percent on average. The company suc-ceeded in earning a comparison price of 36.86 eurocents per kilo (previous year: 37.40 eurocents per kilo), which it paid through Deutsches Milchkontor eG (including an average logistics bonus and dividend). As a result, DMK achieved a competitive milk price which fell by only 1.4 percent in the second half of the year despite the mar-ket upheavals. For 2015, the company expects much lower milk prices, but assumes that it will continue to see a positive trend compared to competitors.

DMK created a purchasing control department and a cross-purchasing project management function in the central controlling section in the autumn of 2014. These new units will actively support central purchasing in implementing the optimum merchandise group and supplier management and will secure the maximum savings potential through defined ratios, analyses, and planning optimisation. Despite a variety of price increases, purchasing costs fell significantly in 2014.

The total sales of the subsidiaries of DMK EIS rose in the reporting period by 11.8 million euros to 299.8 million euros. Sales in the baby food segment also saw an upturn, rising to 252.0 million euros. Group sales stagnated because of falling prices for a number of dairy products. In total, the Group ’s revenues rose compared to the pre-vious year by 13.4 million euros to 5,323.0 million euros. The share of foreign sales was around 40.2 percent in 2014 (2013: 44.5%).

Investments/human resources/research and development/quality managementThe Group’s investment budget (mainly that of Deutsches Milchkontor GmbH) came to around 202 million euros in 2014 (2013: 118.0 million euros), and was mainly devoted to the strategic realignment needed in order to meet market requirements in a targeted way. The focus was on investments in increasing value added in whey

58 Financial information and key figures

Group Management Report 2014

derivatives, skimmed milk powder and whole milk powder. Additional expansion and maintenance investments con-sisted of measures to increase the availability and safety of equipment, improve quality, comply with occupational health and safety and environmental protection regula-tions and optimise the infrastructure.

The workforce of 7,440 employed Group-wide was once more a central success factor for the company in 2014. Their satisfaction is demonstrated by the fact that DMK was once more honoured as a top employer by Focus magazine. The company won first place in the large com-panies, food, drink and tobacco category (2013: second place).

DMK successfully continued the Starter Academy young talents programme, which was launched in 2013, with double the participant numbers in 2014. The focus of the concept is on interpersonal and leadership skills.

In research and development (R&D), the company worked on approximately 350 projects in 2014 (2013: approx. 300) and also published seven technological patent spec-ifications (2013: four) (yield improvement, filtration, pow-der technology, hypo-allergenic foods and basic curd). A further focus was on fast, focused problem-solving in the context of essential optimisation projects at individ-ual sites. R&D also ensured additional quality and cost improvements in product value engineering. Further-more, the R&D departments Brand, Whey Products, Process Development and Packing Development provided intensive support for the production sites. The Group’s quality management is present in all areas. It starts with the dairy farmers and suppliers, intervenes in the produc-tion processes and is integrated in marketing activities. This function protects and measures product quality and customer satisfaction. As a supplementary measure, certification processes affirm that standards are com-plied with. Successful audits at all sites in accordance with the International Food Standard (IFS) or BRC and in accordance with ISO 22000 and other industry and

customer standards (EU regulation on organic farming, Q&S, SMETA, halal, kosher) confirm that the company’s processes are compliant. At the request of the company’sown brand customers, unannounced IFS food checks on hygiene were carried out for the first time by external auditors at all sites, successfully in every case.

Aspects of the net assets, financial position and results of operations in 2014 The DMK Group’s net asset position is in good order. 80.2 percent of the fixed assets are backed by long-term finance. The financial and liquidity position is appropriate in view of the foresighted financing policy. The objectives of financial management are to optimise the Group’s existing financing structures, ensure the availability of sufficient financial resources and use financing instru-ments to optimum managerial effect.

The consolidated equity totals 573.9 million euros (2013: EUR 543.0 million ) with a net income for the year of 42.3 million euros. The equity ratio is highly satisfac-tory at 37.5 percent, with a balance sheet total slightly lower than last year’s.

Outlook and strategy for 2015The Group’s main focus of attention continues to be com-petitive milk prices for the dairy farmers. The business is intended to grow primarily organically within the frame-work of the forecast increases in milk volumes in the company’s milk collecting area. DMK has already initiated investments required for the growth strategy. Targeted acquisitions will complement organic growth. DMK aims to achieve further growth through the export business and has created the structures for this by the formation of Group companies in regions with growing consump-tion of dairy products.

For 2015, DMK expects a further improvement in its busi-ness performance capabilities. The Group wants to further expand its earning power and secure it for the long term with cooperative ventures and participating interests in strategic partners.

59


Financial information and key figures

Group Management Report 2014

Deutsches Milchkontor eG Group and Deutsches Milchkontor eG 2014

Financial information

Deutsches Milchkontor eG Group profit and loss account 61Deutsches Milchkontor eG Group balance sheet 62Deutsches Milchkontor eG Group cash flow statement 64

Deutsches Milchkontor eG profit and loss account 65Deutsches Milchkontor eG balance sheet 66

The complete annual and consolidated financial statements and the Group Management Report have all alreadyreceived an unqualified audit opinion from the Genossenschaftsverband Weser-Ems e.V. They will be published in the German Federal Gazette.The printed financial statements are in abridged form.


2014 in EUR million

2013 in EUR million

1. Sales revenues 5,323.0 5,309.6

2. Increase or decrease in finished goods inventories and work in progress 8.9 0.3

3. Capitalised cost of self-constructed assets 0.8 0.6

4. Other operating income 88.2 46.6

Subtotal 5,420.9 5,357.1

5. Cost of materials

a) Cost of raw materials, consumables and supplies, and of purchased materials 4,320.8 4,278.6

b) Cost of purchased services 24.3 20.7

4,345.1 4,299.3

GROSS PROFIT OR LOSS 1,075.8 1,057.8

6. Personnel expenses

a) Wages and salaries 321.2 285.2

b) Social security and other pension costs 68.7 62.2

389.9 347.4

7. Depreciation of intangible assets and tangible assets 126.5 121.8

8. Other operating expenses 475.1 477.4

Subtotal (1. – 8.) 84.3 111.2

9. Income from associated companies 0.2 0.0

10. Income from participating interests and capital contributions 1.4 0.9

11. Income from transfer of profits 1.0 0.6

12. Income from other investments and long-term loans 0.1 0.1

13. Other interest and similar income 0.4 0.6

Subtotal (9. – 13.) 3.1 2.2

14. Write-downs of financial assets and investments held as current assets 0.0 0.0

15. Interest and similar expenses 21.4 22.9

16. RESULTS FROM ORDINARY ACTIVITIES 66.0 90.5

17. Extraordinary income 0.3 0.0

18. Extraordinary expenses 5.2 0.0

19. EXTRAORDINARY INCOME – 4.9 0.0

20. Taxes on income 15.1 34.7

21. Other taxes 1.6 2.1

22. Payment for participatory capital 2.1 2.0

23. CONSOLIDATED NET PROFIT FOR THE YEAR 42.3 51.7

Deutsches Milchkontor eG Group profit and loss accountfor the period from 1 January 2014 to 31 December 2014

61



Deutsches Milchkontor eG Group profit and loss account

Deutsches Milchkontor eG Group balance sheetas at 31 December 2014

Assets 31.12.2014 in EUR million

31.12.2013 in EUR million

A. FIXED ASSETS

I. Intangible assets

1. Concessions, industrial property rights and similar rights and values, as well as licences thereto 13.1 11.1

2. Goodwill 33.7 51.9

3. Payments on account 4.8 4.2

Total intangible assets 51.6 67.2

II. Tangible assets

1. Land and leasehold rights and buildings, including buildings on third-party land 239.7 237.4

2. Plant and machinery 336.8 325.3

3. Other fixtures and fittings, tools and equipment 33.7 29.4

4. Payments on account and tangible assets under construction 106.8 36.1

Total tangible assets 717.0 628.2

III. Financial assets

1. Shares in associated companies 11.5 11.6

2. Loans to associated companies 0.2 0.0

3. Participating interests in associated companies 11.0 0.0

4. Participating interests 6.7 17.7

5. Loans to companies in which a participating interest is held 0.4 0.5

6. Capital contributions to cooperative societies 0.7 0.7

7. Investments held as fixed assets 0.0 0.0

8. Other loans 2.7 2.5

Total financial assets 33.2 33.0

Total fixed assets 801.8 728.4

B. CURRENT ASSETS

I. Inventories

1. Raw materials and supplies 68.1 68.2

2. Work in progress 24.7 26.0

3. Finished goods and goods for resale 229.7 206.9


Total inventories 322.7 301.8

II. Accounts receivable and other assets

1. Accounts receivable (trade debtors) 272.5 347.7

2. Due from associated companies 4.7 3.9

3. Due from companies in which a participating interest is held 5.4 1.7

4. Other assets 104.5 146.7

Total accounts receivable etc. 387.1 500.0

III. Investments

1. Other investments 0.3 0.3

IV. Cash in hand, cash on deposit with Deutsche Bundesbank, cash in other bank accounts and cheques 16.8 20.1

C. PREPAYMENTS AND ACCRUED INCOME 1.9 2.3

D. DEFERRED TAX ASSETS 1.2 0.9

E. DIFFERENCE DUE TO CAPITAL ACCOUNT 0.1 0.0

Total assets 1,531.9 1,553.8


Deutsches Milchkontor eG Group balance sheet

Equity capital and liabilities 31.12.2014 in EUR million


A. EQUITY CAPITAL

I. Capital contributions

1. of remaining members 171.8 167.5

2. of withdrawing members 6.0 7.3

3. from cancelled shares 0.4 0.1

Total capital contributions 178.2 174.9

II. Capital reserve 72.1 71.1

III. Revenue reserves

1. Statutory reserve 114.5 113.3

2. Other revenue reserves 138.5 77.4

Total revenue reserves 253.0 190.7

IV. Participatory capital 44.9 42.5

V. Consolidated profit

1. Total consolidated loss/consolidated profit carried forward – 16.2 1.4

2. Consolidated net profit for the year 42.3 51.7

3. Allocations to reserves – 12.4 – 2.0

4. Profit/loss attributed to other shareholders – 4.3 – 10.5

Total consolidated net profit 9.4 40.6

VI. Minority interests 16.3 23.2

Total equity capital 573.9 543.0

B. DIFFERENCE DUE TO CONSOLIDATION OF CAPITAL 0.8 0.7

C. SPECIAL ITEM FOR INVESTMENT SUBSIDIES 14.8 15.4

D. ACCRUED LIABILITIES

1. Provisions for pensions and similar obligations 110.5 108.6

2. Provisions for taxation 39.6 37.8

3. Other provisions 104.6 139.2

Total accrued liabilities 254.7 285.6

E. LIABILITIES

1. Due to banks 349.4 302.6

2. Advance payments received 1.5 5.7

3. Accounts payable (trade creditors) 229.1 308.9

4. Due to associated companies 3.9 4.1

5. Due to companies in which a participating interest is held 0.8 0.2

6. Other liabilities 90.8 74.7

Total liabilities 675.5 696.2

F. DEFERRED INCOME 0.1 0.0

G. DEFERRED TAX LIABILITIES 12.1 12.9

Total equity capital and liabilities 1,531.9 1,553.8

63



Deutsches Milchkontor eG Group balance sheet

Deutsches Milchkontor eG Group cash flow statementfor the period from 1 January 2014 to 31 December 2014

2014 in EUR million

1. Consolidated net profit for the year 42.3

2. +/– Depreciation/write-ups of fixed assets 128.1

3. – Reduction in provisions – 31.8

4. –/+ Other non-cash income/expenses – 7.1

5. –/+ Gain/loss from disposal of fixed assets – 4.2

6. –/+ Increase/reduction in inventories, accounts receivable and other assets which cannot be allocated to investing or financing activities 112.1

7. +/– Increase/reduction in accounts payable and other liabilities which cannot be allocated to investing or financing activities – 65.3

8. = Cash flow from operating activities 174.1

9. + Payments from disposal of tangible assets 4.3

10. – Investments in tangible assets – 191.0

11. + Payments from disposal of intangible assets 1.3

12. – Investments in intangible assets – 6.2

13. + Payments from disposal of financial assets 3.1

14. – Investments in financial assets – 3.8

15. – Acquisitions of consolidated companies – 12.1

16. = Cash flow from investing activities – 204.4

17. + Changes in capital contributions (net) 3.3

18. +/– Inpayments/outpayments for participatory capital 2.3

19. – Dividends to members and minority shareholders – 13.8

20. – Change in cash and cash equivalents from sales of receivables – 26.8

21. + Change in cash and cash equivalents from stock repo transactions 13.2

22. + Changes in amounts due to banks 46.8

23. = Cash flow from financing activities 25.0

24. Changes in cash and cash equivalents (items 8., 16. and 23.) – 5.2

25. + Changes in cash and cash equivalents due to consolidation 1.9

26. + Cash and cash equivalents at beginning of period 20.1

27. = Cash and cash equivalents at end of period 16.8


Deutsches Milchkontor eG Group cash flow statement

Deutsches Milchkontor eG profit and loss accountfor the period from 1 January 2014 to 31 December 2014

2014 in EUR thousand

2013 in EUR thousand

1. Sales revenues 2,266,397.0 2,269,515.4

2. Other operating income 2,657.9 2,271.2

Subtotal 2,269,054.9 2,271,786.6


a) Cost of raw materials, consumables and supplies, and of purchased materials 2,238,334.6 2,248,434.3

2,238,334.6 2,248,434.3

GROSS PROFIT OR LOSS 30,720.3 23,352.3




408.3 439.2


6. Other operating expenses 11,832.3 11,657.0

Subtotal (1. – 6.) 18,463.0 10,831.2




Subtotal (7. – 9.) 1,614.4 1,588.4


11. RESULTS FROM ORDINARY ACTIVITIES 20,042.0 12,306.3

12. Taxes on income – 0.9 – 241.9


14. Payment for participatory capital 830.7 1,138.5

15. NET PROFIT FOR THE YEAR 19,194.9 11,318.2

65



Deutsches Milchkontor eG profit and loss account

Assets 31.12.2014 in EUR thousand

31.12.2013 in EUR thousand

A. FIXED ASSETS

I. Tangible assets




II. Financial assets

1. Shares in associated companies 335,411.1 335,373.4

2. Loans to associated companies 15,000.0 15,000.0



5. Investments held as fixed assets 0.6 0.6

6. Other loans 2,672.8 2,510.3

Total financial assets 353,145.5 352,946.1

Total fixed assets 353,436.0 353,253.3

B. CURRENT ASSETS

I. Accounts receivable and other assets


2. Due from associated companies 166,241.3 205,926.1

3. Other assets 8,047.5 12,423.4

Total accounts receivable etc. 174,551.7 218,580.3

II. Cash in hand, cash on deposit with Deutsche Bundesbank, cash in other bank accounts and cheques 11.2 48.2

Total assets 527,998.9 571,881.8

Deutsches Milchkontor eG balance sheetas at 31 December 2014


Deutsches Milchkontor eG balance sheet

Equity capital and liabilities 31.12.2014 in EUR thousand

31.12.2013 in EUR thousand

A. EQUITY CAPITAL

I. Capital contributions

1. of remaining members 171,823.1 167,543.9

2. of withdrawing members 5,969.2 7,292.1

3. from cancelled shares 416.7 31.3

Total capital contributions 178,209.0 174,867.3

II. Capital reserve 35,412.8 35,412.8

III. Revenue reserves

1. Statutory reserve 114,477.2 113,345.4

2. Other revenue reserves 74,735.1 63,169.2

Total revenue reserves 189,212.3 176,514.6

IV. Participatory capital 10,698.0 16,604.0

V. Net profit

1. Profit brought forward 3,069.3 0.0

2. Net profit for the year 19,194.9 11,318.2

3. Allocations to reserves – 11,000.0 0.0

Total net profit 11,264.2 11,318.2

Total equity capital 424,796.3 414,716.9

B. ACCRUED LIABILITIES

1. Provisions for taxation 7,996.2 8,516.8

2. Other provisions 1,485.0 2,416.1

Total accrued liabilities 9,481.2 10,932.9

C. LIABILITIES

1. Accounts payable (trade creditors) 89,541.3 141,344.4


3. Other liabilities 4,179.1 4,886.6

Total liabilities 93,721.4 146,232.0


67



Deutsches Milchkontor eG balance sheet

DMK Deutsches Milchkontor GmbH 2014 Financial information

DMK Deutsches Milchkontor GmbH profit and loss account 69DMK Deutsches Milchkontor GmbH balance sheet 70


DMK Deutsches Milchkontor GmbH profit and loss accountfor the period from 1 January 2014 to 31 December 2014

2014 in EUR million

2013 in EUR million

1. Sales revenues 3,926.3 3,931.2

2. Increase or decrease in finished goods inventories and work in progress – 6.1 25.6

3. Capitalised cost of self-constructed assets 0.8 0.6

4. Other operating income 87.8 59.8

Subtotal 4,008.8 4,017.2


a) Cost of raw materials, consumables and supplies, and of purchased materials

3,321.6 3,306.8

b) Cost of purchased services 61.1 56.7

3,382.7 3,363.5

GROSS PROFIT OR LOSS 626.1 653.7




226.8 209.7


8. Other operating expenses 297.4 308.2

Subtotal (1. – 8.) 35.7 70.1


10. Income from transfer of profits 4.5 3.6



Subtotal (9. – 12.) 18.3 14.1

13. Write-down of financial assets and short-term investments 0.0 0.0

14. Expenses from transfer of losses 2.1 1.9


16. RESULTS FROM ORDINARY ACTIVITIES 33.2 63.0

17. Extraordinary expenses 0.5 0.5

18. EXTRAORDINARY INCOME – 0.5 – 0.5

19. Taxes on income 2.7 18.2


21. Payment for participatory capital 2.2 1.7

22. NET PROFIT FOR THE YEAR 27.3 42.1

69



DMK Deutsches Milchkontor GmbH profit and loss account

DMK Deutsches Milchkontor GmbH balance sheetas at 31 December 2014

Assets 31.12.2014 in EUR million


A. FIXED ASSETS

I. Intangible assets

1. Concessions, industrial property rights and similar rights and values, as well as licences thereto 10.6 9.0


Total intangible assets 15.4 13.2

II. Tangible assets


2. Plant and machinery 191.4 175.9


4. Payments on account and tangible assets under construction 93.8 25.5


III. Financial assets

1. Shares in associated companies 215.0 209.5

2. Loans to associated companies 23.1 34.3


4. Loans to companies in which a participating interest is held 0.4 0.5


6. Other loans 0.0 0.1

Total financial assets 242.5 247.8

Total fixed assets 711.1 624.7

B. CURRENT ASSETS

I. Inventories

1. Raw materials and supplies 29.5 30.6

2. Work in progress 15.6 19.5

3. Finished goods and goods for resale 126.9 125.7

Total inventories 172.0 175.8

II. Accounts receivable and other assets


2. Due from associated companies 122.4 123.1

3. Due from companies in which a participating interest is held 0.3 1.1

4. Other assets 75.7 91.3

Total accounts receivable etc. 370.6 444.9

III. Cash in hand, cash on deposit with Deutsche Bundesbank, cash in other bank accounts and cheques 1.6 7.5

C. PREPAYMENTS AND ACCRUED INCOME 1.2 1.4

Total assets 1,256.5 1,254.3


DMK Deutsches Milchkontor GmbH balance sheet

Equity capital and liabilities 31.12.2014 in EUR million


A. EQUITY CAPITAL

I. Subscribed capital 150.0 150.0

II. Capital reserve 193.6 193.6

III. Revenue reserves 50.5 8.4

IV. Participatory capital 49.2 40.9

V. Net profit for the year 27.3 42.1

Total equity capital 470.6 435.0

B. SPECIAL ITEM FOR INVESTMENT SUBSIDIES 0.4 0.7

C. ACCRUED LIABILITIES

1. Provisions for pensions and similar obligations 102.6 100.3

2. Provisions for taxation 14.4 14.1

3. Other provisions 68.5 100.6

Total accrued liabilities 185.5 215.0

D. LIABILITIES

1. Due to banks 283.8 242.1

2. Advance payments received 0.3 5.0

3. Accounts payable (trade creditors) 60.7 73.0


5. Due to companies in which a participating interest is held 0.1 0.1

6. Other liabilities 68.7 57.3

Total liabilities 600.0 603.6


71



DMK Deutsches Milchkontor GmbH balance sheet

Goal status of DMK 2020 sustainability strategy

MILK

Value added

include DMK suppliers in taking responsibility for compliance with social and environmental standards purchase important basic raw materials from sustainable agricultureintroduce innovative product concepts with a high value contribution have at least 20 percent of innovation projects related to sustainability

Quality continue external auditing of all dairy farmers by QM-Milchagree on standardise quality assurance at all locations with all subsidiaries standardise quality management and quality assurance at all our sites

Product safety have an external annual inspection of quality and product safety processes constantly increase product safety across the value chain

Packagingdevelop innovative environmentally friendly and modern packaging conceptsreduce pollution and increase environmental compatibility in packagings give end consumers targeted information about sustainable packagings and their recycling

TEAM

Satisfaction

achieve competitive milk prices on a long-term basis make DMK a top employer in the food industryfurther expand the values-based, sustainable corporate culture have no accidents at DMK sitesembed a behaviour-based safety culture at all our sites

Training

further develop key topics in milk productionoffer annual sustainability workshops for all dairy farmersenable all employees to pursue regular and targeted developmentraise awareness of key DMK topics continuously and at all sites

Diversity promote the dairy industry as an attractive professional field for all ages and cultural groups offer career starters sound training that ensures good prospects

Elected officepromote the dairy farmers’ role as elected officers in the cooperative’s executive bodies increase the ratio of young dairy farmers among our cooperative’s elected officers support voluntary organisations in which our employees are engaged

SOCIETY

Dialogue

give consumers transparent information about the path milk takeshold an annual meeting with relevant stakeholdersmake a real difference to important issues in the agricultural and food industryopen farm gates in all DMK regions every year

Dairy competenceset up 16 farms of competence in the DMK regionsestablish a DMK scholarship programme for international young talents in the milk and dairy be an active shaper of sustainability in the milk value chain

Researchsupport research across the milk value chainpromote young scientists with research projects for the milk industry

Commitmentestablish a school farm programme in regions close to citiessupport projects to promote regional attractiveness

AGRICULTURE Cow comfortmaintain and promote sufficient exercise for our cowsmaintain and promote proper rest areascontinuously promote our cattle’s well-being

Animal healthcontinuously improve animal healthpromote veterinary care for all cattlefurther develop preventive health care with modern measuring methods and professional herd management

Feed cultivationsupport sustainable cultivation even for imported feedsreduce nitrogen and phosphate deposition from farmyard manurepromote biodiversity in our regions

Feedingimplement feeding that matches the cows’ needssupport professional feed managementestablish optimum feeding and drinking conditions for all cattle

Area Field of action Goals 2020: To achieve this goal at DMK, we want to … 2013 2014 2015 2016 2017 2018 2019 2020

All these goals are part of the DMK 2020 sustainability strategy and were defined and developed in 2012.

ENVIRONMENTEnergy

improve energy efficiency by 15 percent compared to 2011constantly encourage all DMK employees to reduce energy consumptionincrease our internally produced energy supply to at least 50 percent compared to 2011initiate projects for climate-neutral energy generation

Waterimprove our specific water efficiency by 20 percent compared to 2012continuously raise DMK employees’ awareness of using water responsibly

Wastereduce the volume of residual waste at DMK by increasing the sorting quotasput in place a comprehensive waste flow optimisation concept at all DMK sites

Logistics

optimise our transportation network and make it more efficientin deliveries to our customers, we will reduce the share of logistics errors to less than 0.5 percent

use economical technologies in transport vehicles




MILK

Value added

include DMK suppliers in taking responsibility for compliance with social and environmental standards purchase important basic raw materials from sustainable agricultureintroduce innovative product concepts with a high value contribution have at least 20 percent of innovation projects related to sustainability

Quality continue external auditing of all dairy farmers by QM-Milchagree on standardise quality assurance at all locations with all subsidiaries standardise quality management and quality assurance at all our sites

Product safety have an external annual inspection of quality and product safety processes constantly increase product safety across the value chain

Packagingdevelop innovative environmentally friendly and modern packaging conceptsreduce pollution and increase environmental compatibility in packagings give end consumers targeted information about sustainable packagings and their recycling

TEAM

Satisfaction

achieve competitive milk prices on a long-term basis make DMK a top employer in the food industryfurther expand the values-based, sustainable corporate culture have no accidents at DMK sitesembed a behaviour-based safety culture at all our sites

Training

further develop key topics in milk productionoffer annual sustainability workshops for all dairy farmersenable all employees to pursue regular and targeted developmentraise awareness of key DMK topics continuously and at all sites

Diversity promote the dairy industry as an attractive professional field for all ages and cultural groups offer career starters sound training that ensures good prospects

Elected officepromote the dairy farmers’ role as elected officers in the cooperative’s executive bodies increase the ratio of young dairy farmers among our cooperative’s elected officers support voluntary organisations in which our employees are engaged

SOCIETY

Dialogue

give consumers transparent information about the path milk takeshold an annual meeting with relevant stakeholdersmake a real difference to important issues in the agricultural and food industryopen farm gates in all DMK regions every year

Dairy competenceset up 16 farms of competence in the DMK regionsestablish a DMK scholarship programme for international young talents in the milk and dairy be an active shaper of sustainability in the milk value chain

Researchsupport research across the milk value chainpromote young scientists with research projects for the milk industry

Commitmentestablish a school farm programme in regions close to citiessupport projects to promote regional attractiveness

AGRICULTURE Cow comfortmaintain and promote sufficient exercise for our cowsmaintain and promote proper rest areascontinuously promote our cattle’s well-being

Animal healthcontinuously improve animal healthpromote veterinary care for all cattlefurther develop preventive health care with modern measuring methods and professional herd management

Feed cultivationsupport sustainable cultivation even for imported feedsreduce nitrogen and phosphate deposition from farmyard manurepromote biodiversity in our regions

Feedingimplement feeding that matches the cows’ needssupport professional feed managementestablish optimum feeding and drinking conditions for all cattle

Area Field of action Goals 2020: To achieve this goal at DMK, we want to … 2013 2014 2015 2016 2017 2018 2019 2020

Status of goals: = not yet started, = planning has started, = implementation has started, = goal achieved, = goal not achieved.

= planned goal achievement

All goals are reviewed annually.

ENVIRONMENTEnergy

improve energy efficiency by 15 percent compared to 2011constantly encourage all DMK employees to reduce energy consumptionincrease our internally produced energy supply to at least 50 percent compared to 2011initiate projects for climate-neutral energy generation

Waterimprove our specific water efficiency by 20 percent compared to 2012continuously raise DMK employees’ awareness of using water responsibly

Wastereduce the volume of residual waste at DMK by increasing the sorting quotasput in place a comprehensive waste flow optimisation concept at all DMK sites

Logistics

optimise our transportation network and make it more efficientin deliveries to our customers, we will reduce the share of logistics errors to less than 0.5 percent

use economical technologies in transport vehicles

73




Chapter in report Page Standard disclosures included

DMK GROUP – our strategy 1.1

About this report 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.7, 3.9, 3.10, 3.11, 4.14, 4.15

DMK in brief 2.1, 2.2, 2.4, 2.5, 2.6, 2.8

Global success with German quality/Contents 1 2.5, 2.7, 4.8

Foreword by the DMK GmbH Management Team 4 – 6 1.1, 1.2, 4.1, 4.8, EC1, EN14, LA13, SO1

Foreword by the cooperative’s elected officers 7 1.1, 1.2, 4.1

Highlights 2014 8 – 9 2.10

Business and responsibility 10 – 15

1.2, 2.2, 2.3, 2.10, 3.5, 3.8, 4.8, 4.9, 4.10, 4.11, EN14, SO1, SO2, Management approaches: Economy, ecology, working environment and working conditions, human rights, society, product responsibility

Cooperative 16 – 17 1.2, 2.6

Stakeholder relations 18 – 21 1.2, 4.13, 4.14, 4.15, 4.16, 4.17, SO1

Brands and products 24 – 27 2.2, 2.7, 2.10, 3.8, PR1, PR3, Management approach: Product responsibility

Internationalisation 30 – 31 2.7, 3.8

Product responsibility 32 – 33 1.2, 4.13, SO1, Management approaches: Human rights, product responsibility

Business environment and background 36 – 37 1.2, EN14, SO1

Animal welfare and environmental impact 40 – 41 4.12, EN26, Management approach: Ecology

Environmental protection at the production sites 42 – 45 2.10, EN3, EN5, EN6, EN8, EN18, EN21, EN22, EN26, Management approaches: Ecology, working environment and working conditions

Values and opportunities 48 – 49

2.10, 4.8, LA3, Management approaches: Working environment and working conditions, human rights

Employees 50 – 53

2.10, 4.4, 4.6, 4.8, 4.11, 4.12, LA1, LA2, LA3, LA7, LA8, LA11, LA13, HR2, HR4, SO3, SO4, Management approaches: Working environment and working conditions, human rights

Region and responsibility 56 – 57 4.12, SO1, Management approach: Society

Group Management Report 2014 58 – 60 2.8, 2.9, EC1

DMK Deutsches Milchkontor GmbH profit and loss account

69 EC1

DMK Deutsches Milchkontor GmbH balance sheet 70 – 71 EC1

Goal status of DMK 2020 sustainability strategy 72 – 73

EN6, EN14, EN18, EN26, Management approaches: Ecology, working environment and working conditions, human rights, society, product responsibility

GRI Content Index – abridged version 74 – 75 3.12

Executive bodies 76 2.3, 2.6, 4.1, 4.2, 4.3, 4.6

Sites 2.3, 2.4, 3.4, 3.8

Structure of executive bodies 2.3, 2.6, 4.1

Group structure 2.3, 2.6, 3.8

Full GRI Content Index with additional comments as online version

Additional: 3.12, 3.13, 4.1, 4.2, 4.5, 4.6, 4.7, 4.13, 4.14, 4.15, 4.16, 4.17, EC2, EC3, EC7, EN3, EN5, EN9, EN16, EN28, LA3, LA6, HR1, HR2, HR4, HR6, HR7, HR9, SO3, SO4, SO7, SO8, PR5

Only those chapters are listed which contain standard disclosures (report profile, management approaches, performance indicators).

GRI Content Index – abridged versionDMK GROUP reports in accordance with GRI-G3

75Financial information and key fi gures

GRI Content Index – abridged version

You will fi nd the detailed version of the GRI Content Index

with additional comments and the GRI Application Level Service icon

as well as the Combined Annual Report and Sustainability Report for 2014 at

www.dmk.de/en/responsibility/sustainability/strategy/

GRI application level

DMK GROUP’s combined reporting is based on the G3 Guidelines of the Global Reporting Initiative (GRI). The self-assessment of Application Level B was also examined and confi rmed by the GRI.

C C + B B + A A +

Self-assessment

Externally examined

Examined by GRI

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75Financial information and key fi gures


You will fi nd the detailed version of the GRI Content Index

with additional comments and the GRI Application Level Service icon

as well as the Combined Annual Report and Sustainability Report for 2014 at

www.dmk.de/en/responsibility/sustainability/strategy/

GRI application level

DMK GROUP’s combined reporting is based on the G3 Guidelines of the Global Reporting Initiative (GRI). The self-assessment of Application Level B was also examined and confi rmed by the GRI.

C C + B B + A A +

Self-assessment

Externally examined

Examined by GRI

Man

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Rep

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76 Further information

Executive bodies

Executive bodies

Management Board/Management Team

Dr Josef Schwaiger 2 Chief Executive Offi cer

Michael Feller 2

Marketing/Sales

Dr Dirk Gloy 2

Chief Operating Offi cer

Ingo Müller 2

Ingredients/ Central Quality Management/Research & Development

Volkmar Taucher 2

Chief Financial Offi cer

Sönke Voss 2

Agricultural Affairs/Raw Materials

Ines KrummackerDirector Human Resources

1 Representative of the NGG trade union2 Management Board members

As of 31.12.2014

Deutsches Milchkontor eG Board of Management

Alfons Kerlfeld Chairman

Thomas StürtzDeputy Chairman

Reinhard Garbade (until June 2014)

Detlef Horstmann

Franz-Josef Krechtmann

Reiner Lübben

Christian Mülker

Harald Nitschke

Henner Pape

Jörg Pape

Dirk Schröder

Dr Klaus Wagner

Supervisory Board

Otto Lattwesen Chairman

Dr Herbert Grimberg 1 1st Deputy Chairman

Adolf Oehlmann 2nd Deputy Chairman

Dirk Baus

Mohamed Boudih 1

Uwe Boye

Udo Eckhoff

Benedikt Langemeyer

Franz Morgret

Dr Bernd Nix

Frerk Osterndorff

Meyk Wendekamm

Sites

Publication details

Published byDMK Deutsches Milchkontor GmbH

Consultancy on sustainability contentAnke Steinbach, Hamburg

Concept, design and editing HGB Hamburger Geschäftsberichte

GmbH & Co. KG, Hamburg

Printing and fi nishingHartung Druck + Medien GmbH,

Hamburg

Photos Sebastian Vollmert, HamburgAndreas Dittmer, Heeslingen

Production sites as at 31.12.2014 and Bremen administrative headquarters of DMK Deutsches Milchkontor GmbH as well as production sites in Germany as at 31.12.2014 of subsidiaries in which the Deutsches Milchkontor eG Group holds a minimum share of 75%

Hohenwestedt

Waren

Prenzlau

Everswinkel

Altentreptow

Dargun

Bergen

Erfurt

Bad Bibra

Holdorf

Waghäusel Nuremberg

Edewecht

Bremen

Nordhackstedt

Strückhausen

Neubörger

Zeven 1

Coesfeld

Waldfeucht-Haaren

Münster

ReckeBeesten

Rimbeck

Georgsmarienhütte

Herford

1 Registered address, registered offi ce

Structure of executive bodies

6 people

Deutsches Milchkontor eG

Employees

Management BoardDMK Deutsches Milchkontor GmbH

6 people

represented by the Board of Management

Partners’ Meeting

Supervisory Board

Structure of executive bodies

6 people

Deutsches Milchkontor eG

Employees

Management BoardDMK Deutsches Milchkontor GmbH

6 people

represented by the Board of Management

Partners’ Meeting

Supervisory Board

Group structureof Deutsches Milchkontor eG Group

NumberSubsidiaries, fully consolidated (see above): 30 Subsidiaries, associated companies (see above): 1Other subsidiaries and associated companies (without fi g.): 28 As of 31.12.2014

Fude + Serrahn GmbH & Co. KG

100 % 100 % 100 % 100 %

100 %

100 % 100 %

100 % 100 % 100 %

100 % 100 %

100 % 100 % 51 %

66.66 % 100 %

100 %

100 %

75 %

90 %

10 %

35 %

25 %

5 % 55 %

Deutsches Milchkontor eG Milchwerke Thüringen GmbH99.69 %

92.22 % 7.78 %DMK Deutsches Milchkontor GmbH

DMK Baby GmbH

100 %

Sunval Holding GmbH

Zentralkäserei MV GmbH

EXIMO AG

Molkerei Niesky GmbH

sanotact GmbH

Euro Cheese Vertriebs-GmbH

HDT GmbH

DMK Eis GmbH

Sunval Nahrungs-mittel GmbH

HUMANA Italia SpA

MIG GmbH & Co. KG

HUMANA SPAIN S.L.

Rosen Eiskrem Süd GmbH

MILTE ITALIA S.p.A.Rosen-Eiskrem

GmbH

HUMANA Pharma International SpA

40 % 100 % 50 %

60 % 100 %

75 %

TURM-Sahne GmbH

Müritz Milch GmbH wheyco GmbH

indoc milk GmbH

D.P. Supply B.V.

NORLAC GmbH

DP Supply GmbH

NORDMILCH Beteiligungs GmbH

ArNoCoGmbH & Co. KG

HUMANA GmbH

DMK Deutsches Milchkontor GmbH

Registered offi ce Industriestrasse 27 · D -27404 Zeven · Germany

Tel +49 4281 72-0 · Fax +49 4281 72-58297

[email protected] · www.dmk.de

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combined annual report and sustainability report 2014 · combined annual report and sustainability...

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