Interview Pieter Wolleswinkel
'ForFarmers focuses on existing markets this year'
ForFarmers presented its annual figures for 24 yesterday, Thursday 2021 February. The company has ended what it says is a 'turbulent' year with lower results. Pieter Wolleswinkel, COO of the Netherlands and Belgium of ForFarmers, about the impact of the war in Ukraine, the challenging market conditions, the situation in the United Kingdom, investor concerns and the state of affairs in acquisitions.
ForFarmers ended 2021 with an almost 20% lower underlying EBITDA. The listed group is mainly active in shrinking markets, which creates considerable competition. The compound feed sector also suffers from high costs for raw materials and energy. In its outlook for the first half of this year, the group expected high prices for raw materials and energy to continue, partly due to the armed conflict between Russia and Ukraine. Furthermore, the agricultural sector in Northwestern Europe is facing a further decline in livestock.
Developments that not only ForFarmers, but the entire sector is watching with suspicion. Wolleswinkel, operational director in the Netherlands/Belgium of the Lochem feed giant since 2019, remains positive and mainly wants to look at the opportunities that lie there. ForFarmers aims for organic growth in countries where it is already active. In the event of potential takeover candidates, the group no longer seems to focus on entering a new sixth country, something CEO Yoram Knoop announced earlier. "The market is turbulent and moving, that demands our attention. The focus for possible acquisitions at the moment is on the countries in which we are already active," says Wolleswinkel.
To what extent does the current situation in Ukraine affect the results of ForFarmers and is there also a direct threat to the business in Poland?
"As a response to the conflict, we see prices for energy and raw materials rise almost immediately. These are two major cost items for us. We have therefore also stated in the presentation of our annual figures that we expect the EBITDA in the first half of 2022 to increase significantly. lower than in the first half of 2021. The price impact cannot be estimated in the longer term. As far as the direct threat to our activities in Poland is concerned, it seems small for the time being. First, our factories are still relatively far from the Polish -Ukrainian border. Moreover, Poland is a member of NATO. Our contacts with colleagues there do not reveal any acute threat. It is, of course, true that activities adjacent to a war zone, as we can now call Ukraine, demand attention. the large influx of refugees that Poland will receive in the near future.From other players in the business that are active in Ukraine itself, such as Cargill and Nutreco, kri We understand that there are major concerns with these companies."
Knoop called 2021 a turbulent year. How would you describe the results yourself: disappointing or satisfying?
"I think it's somewhere in between. Turbulent indicates it best. We have of course seen a lot of impact from corona, which has had a major impact on our employees and the supply chain. Despite corona infections and quarantines, we have been able to to deliver the feed to customers on time. In my opinion, that is a very good achievement. We have seen that the cost price in our business has risen enormously. We have tried to pass this increase on to the chain in a fair way and that has been challenging. Challenging is a better word in this context than disappointing or satisfying."
You stated in the explanation of the annual figures that it is too early to estimate exactly how the livestock will develop. But what is the potentially negative effect of a decline of, for example, 10% of the livestock on the results of ForFarmers?
"The most important thing for both ForFarmers and other parties in the chain is to eliminate the failure costs that arise. Think of unused trucks, understaffing in factories, et cetera. In that light, it will be important to enter into collaborations and partnerships. Of course, no farmer is willing to pay for our inefficiencies, which means that we may also have to adapt our organization to the size of the market, but we are an ambitious company and want to outperform the market even in times of contraction. Through this approach, we firmly believe that we can continue to be a healthy company with healthy profitability."
The annual report states that various stakeholders have expressed their concerns to the Supervisory Board about the financial performance and that these have been discussed with the Executive Board. Which parties expressed concern and what exactly was the concern?
"Of course we see that since we let go of the outlook for our results, there are naturally questions from shareholders (including the cooperative) and analysts. They wonder: hey, what is going on here. We are in contact with these parties and We also indicate what we believe to be a realistic expectation. We indicate as accurately as possible what incidents are and what structural matters. In our view, the high prices for raw materials and energy are partly incidental. We then determine in consultation whether this has consequences for the strategy of the company. We also have to be realistic that in this period, partly due to market conditions, we will perform less than we aspire to from a strategic perspective. That is why we are currently also evaluating our strategy."
Do you try to keep them on board in conversation with shareholders?
"Certainly. We believe in a bright future for livestock farming, certainly also within Northwestern Europe. We see that when a market is moving - there is turbulence - opportunities arise. ForFarmers has a clear role in this playing field with turbulent and uncertain market conditions. Our discussions with investors are certainly no longer just about financial performance. They also demand progress and performance in the field of sustainability. Investors are tightening their mandates about this. We do not only work with financial targets, but also with integrated sustainability objectives. Fortunately, our scale enables us to respond well to sustainability objectives, which sometimes require financial space. This enables us to make agricultural chains future-proof."
You have just indicated the objective to grow organically as well. This is always expressed, but has not actually been realized for years. Is that aim realistic?
"If I look at the Netherlands/Belgium cluster, we were able to maintain our market shares well last year, despite a number of setbacks. In line with a slightly shrinking market. I am convinced that we can grow organically when more In the past year, customer balances in certain segments developed nicely and positively. Our intensive focus on being the feed partner in numerous chain partnerships also contributes to good prospects and lays a good foundation for the future. "
Still, there was a significant organic decline in volume in the second half of the year?
"That is correct and is largely due to the warm remediation scheme in pig farming. The roll-out of animal welfare concepts in the poultry segment also means that individual companies purchase less feed. In addition, we report the Netherlands in combination with Belgium, of course, and that is where the animal numbers are. under a lot of pressure."
Will the volume stabilize in the first months of 2022?
"From last April/May (2021), we see volumes under pressure due to the warm sanitation scheme (year-on-year, ed.). In the coming months, we expect this scheme to have some effect on the sale of pig feeds. and cattle farming, however, we are more positive. The phasing out of the corona measures will lead to a recovery of the broiler population. Cattle farming is somewhat more difficult to predict, but the high milk prices may lead to farmers deciding to increase production and use more concentrates for this In addition, we are very satisfied with how we score technically on the dairy farms, which is reflected in the loyalty of our cattle customers."
If we look at the sales of feed in the United Kingdom, we see that in seven years the volume has decreased from almost 3,1 million tons to more than 2,4 million tons. Is such a decline in volume not problematic and are there any leads?
"Certainly there are. When we took over BOCM Pauls in the UK in 2012, there was a relatively large volume that added little to the result. There were many contracts/price agreements that did bring volume, but which were priced very minimally for us from a margin perspective. The compound feed chain is of course also organized very differently in the UK. The country is much larger and there are more production locations. In addition, there are greater transport distances by road from raw materials to the factories and feeds to the customers. As a company, we do not just want focusing on volume, but also on an appropriate profitability.It sometimes means that you first go through a dip, but that you work towards a more efficient company in the longer term.Slowly but surely, we are now also seeing that the gross profit per tonne of feed which is increasing. That is a step in the right direction."
Does a decline in the volume of feed not have a significant effect on the fixed costs per tonne of feed?
"That is indeed the balance that we have to look for in this market, the reorganization of production without the fixed costs per ton rising too much. However, as a company we emerge stronger from such a process, in which we better select which business really adds what for the company. The management in England really dares to make decisions in this area, so we see the prospects as positive."
The dividend for shareholders has remained unchanged. This is, of course, based on the results. Is the current dividend level (€0,29) a question mark for the future, now that margins are under pressure?
"The question is: how do we deal with our cash flows. We invest heavily in our factories and in interesting acquisitions. Given our strong balance sheet, we also do not want to forget our shareholders. That is why we have seen for this year that it is justified to pay a dividend of €0,29, unchanged from 2020. This also means that members/customers of the FromFarmers cooperative, based on distribution in relation to the number of feed equivalents, pay a supplementary payment of over €4,50 per tonne of feed Our dividend policy is to pay out 40% to 60% of the underlying profit after tax to shareholders, which is approximately €2021 per share based on the full year results for 0,19. The 'additional' dividend of €0,10 is possible because of our strong balance sheet, so since the dividend depends on the annually fluctuating underlying profit, we cannot make any statements about the amount of future dividends. Back to your question: the amount of the future ig dividend is a question mark for every company, every year. Also for us."
Talking about acquisitions, there's been talk of adding a sixth country to the portfolio for quite some time now, do you think that's going to happen this year??
"We really look at acquisitions with policy. We see that there is a lot of dynamism and movement in the countries where we are already active, partly as a result of shrinking animal numbers. See, for example, the acquisition of Coppens animal nutrition by De Heus, the collaboration of ABZ with De Collaboration. In the current market, parties are asking themselves: what will my future look like and what role will I play in it? This results in fundamentally different movements than in growth markets. I can say that the focus for this year is more countries where we are already active than with acquisitions in new countries."
Briefly about the listing of ForFarmers. At a time of social and sustainable entrepreneurship, the cooperative organizational form appears to have the wind in its sails. Hein Schumacher believes that the time of shareholder capitalism is behind us, Wiebe Draijer speaks at Rabobank about the cooperative test against which products and services supplied must be screened. Do you still believe that a stock exchange listing fits the DNA of a company that used to be cooperative?
"We have to go back to the question: why did we go public? We didn't do this to raise money. With the growth of the company, the question was asked: who owns this company at the moment and how would that That is why the assets were first put in the name of the members. Then a trading platform was created to be able to trade these securities. The last step in this process was the public IPO."
"When it comes to the DNA of a company, I understand that there is always a certain emotion with an IPO, but I also think that the coin has two sides. The listing ensures that no other feed company operates so transparently. We communicate to farmers about what we do, how we work, what we think and how we perform. Customers appreciate that. We have had high peaks, and are now dealing with somewhat lesser results. The most important thing is: no matter how things go for ForFarmers, good-quality feed simply goes back into the silo. In addition, a significant part of the shares are still owned by the cooperative and the members individually. So we are partly cooperative, partly listed."
Still, is there a somewhat negative image to an IPO with investors who go for yield?
"In my opinion, this also has to do with the feeling that investors always want to go for short-term returns. ForFarmers has a real long-term focus, which is also supported by the Supervisory Board and coordinated with all shareholders, including the cooperative. Our long-term focus is in the interest of our customers and other stakeholders.The fact that we do not focus on short-term returns is also apparent from the fact that we invested no less than €2020 million in 2021 and 75 in keeping our own factories. Despite the challenges in the sector, we have never invested so much in our production locations before. That is a sign that we are there for 'the future of farming'. The most important thing in my view is that we work with all parties in the sector to work on the most efficient chain possible. Whether private, cooperative or listed, that goal is ultimately the same for everyone."
Steve Wissink
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