ForFarmers saw the sales of feed fall sharply in the first half of 2022, but the turnover in euros actually rose sharply. Particularly from the second quarter of this year, the feed group was able to pass on the increased costs of energy and raw materials (such as grains) more effectively in the feed price to the affiliated livestock companies in the five European countries in which ForFarmers is active.
"Of course we saw that coming." Roeland Tjebbes, the financial boss (CFO) of ForFarmers, tried to add some light to the red trend in ForFarmers' feed volume when explaining the half-year figures. It is quite something to swallow when feed sales fall by a total of 7,4% in the first six months of the year, and by more than 8% each in important sales clusters such as the Netherlands/Belgium and Germany/Poland. For the Netherlands, this decrease had been somewhat taken into account, given the effects of the stopper scheme for pig farms. ForFarmers also reports a "slight loss" of customers in the pig farming industry. But the feed company was also able to store less feed in the Dutch dairy and poultry farming sector in the first half of this year for various reasons.
Stop selling loose raw materials
In addition, many pig companies in Germany have closed down due to the poor situation on the Northwestern European pig market, which was confronted with a surplus of pigs and pork after the loss of exports to China. ForFarmers also saw feed sales to dairy farming decline due to a decline in the dairy herd. A bright spot for the company is the development of poultry farming in Poland. This sector is growing due to the increasing demand for chicken meat. This has everything to do with the war in Ukraine, which makes it more difficult for that country to export poultry meat. Poland is now partly filling the gaps that are emerging on the markets. In addition, ForFarmers has decided to no longer enter the market for loose raw materials in Poland and Germany, from the perspective of sustainable profitability.
ForFarmers saw feed sales decline the least in the United Kingdom; by 4,5%. Here, the feed company focuses mainly on the sale of poultry feed. The deal with the poultry feed company 2Agriculture to enter into a joint venture in the British feed market (in which ForFarmers has a controlling interest of 50,1%) is a good example of this. CEO Chris Deen is very pleased with this agreement, although he is still cautious because the British antitrust watchdog still has to approve the collaboration. "I am very enthusiastic about the collaboration with 2Agriculture. We complement each other very well, which will yield major synergy benefits. Not only in feed types, but also in logistics, for example."
Increasing turnover and gross profit
With declining feed sales, ForFarmers was able to improve its financial performance. CFO Tjebbes does not so much look at the slightly declining net profit of €17,1 million for the first half of 2022, but mainly at the figures that better reflect the daily business within the group, such as gross profit and EBITDA. These two figures have been on the rise at ForFarmers in the past six months, because the feed company managed to save costs and better pass on the increasing costs of electricity and raw materials in the feed price to customers. In the first six months, ForFarmers saw underlying operating expenses increase by €38 million. "For the most part due to rising energy costs such as electricity, gas and diesel," explains Tjebbes, "as well as the costs of raw materials such as grains and of course inflation."
However, ForFarmers managed to compensate these costs with a €40 million higher gross profit, or an increase of 18,3% to €257,3 million. The passing on of costs has been particularly successful in foreign markets, according to Tjebbes. "In the Netherlands we have not been able to charge everything that we could have done based on the costs." The big question is of course what the feed price will do in the coming months, especially if prices on the energy market continue to rise, for example.
CEO Chris Deen absolutely does not want to get his hands dirty with that. He indicates that ForFarmers does not provide any expectations for developments in the coming period, including the feed price. "There are so many uncertainties in the market, in raw materials, the war in Ukraine, in energy, the nitrogen policy, we really cannot make a statement about that." However, the critical situation of customers is also felt at ForFarmers, regardless of feed sales, Tjebbes explains. For example, ForFarmers has reserved more money through a provision for doubtful debts and the group regularly consults with customers about extending payment terms.
Logistics and strategy
Deen emphasizes that drought will also play a role. The low water level in the rivers could hinder the logistics of delivering raw materials by ship to ForFarmers' production locations. The feed company does not expect that this will jeopardize deliveries to customers, although additional costs may be incurred if the raw materials have to be transported to the factories by road, for example.
ForFarmers will present what the company calls a refined strategy in the fourth quarter. Under Yoram Knoop, Deen's predecessor, the feed company had plans to expand to two additional countries, but a move to America was not ruled out. That has now been completely abandoned in the current market, Tjebbes emphasizes. Although ForFarmers has not invested in acquisitions in the past six months, the company continues to look extensively at joining forces in the current sales markets. "We will always continue to look around, but for now in the five countries in which we are active," says Tjebbes. "We will provide an update on our strategy in the fourth quarter."
In any case, investors on the Amsterdam stock exchange were not enthusiastic about the results presented by ForFarmers on Thursday morning.
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