5 Results 2014

ForFarmers operating result € 59 million

In the 2014 financial year ForFarmers showed a strong improvement of the operating result from € 43.4 million to € 59.1 million. The operating result excluding incidental items improved from € 45.4 million in 2013 to € 59.2 million in 2014 (30.3%). The operating result and the operating result excluding incidental items (1) is as follows:

The improvement of the operational result due to acquisitions amount to € 1.7 million, the effect due to foreign exchange rates to € 0.9 million. In 2014 additional costs have been incurred due to the bird flu (€ 1.0 million) as well as additional costs related to the study of and the preparation for a potential public exchange listing and the transformation to one brand (‘rebranding’). In 2013 additional provisions for receivables of € 9.0 million were made.
If the above amounts are to be disregarded, there is an improvement in the operating result of € 3.2 million. This is partly realised by improved margins and partly by cost savings.

The result after tax in 2014 amounts to € 39.0 million, which is an increase of € 7.9 million (25.2%) compared to the previous financial year. The result after tax was, apart from the aforementioned effects, also affected by non-recurring charges (€ 1.5 million after taxes) due to the offsetting of interest swaps that no longer formed an effective hedge under the newly concluded funding facility of € 300 million. Due to the new funding facility the capitalised closing fees of the previous funding facility were also written off. In 2013 there was an incidental book profit of € 1.6 million resulting of the sale of the minority interest in Agrovision.

The 2014 financial year was dominated by the further international expansion through the acquisitions of HST Feeds and Wheyfeed in the United Kingdom. These acquisitions have already contributed to the profit per share in 2014. In December 2014 ForFarmers announced the proposed acquisition of the feed and roughage activities of Countrywide Farmers. The transaction requires the approval of the UK competition authorities which is currently still pending. These acquisitions are aligned with the expansion of the product and service portfolio, one of the pillars of the new strategy of ForFarmers.

Over the last 12 months ForFarmers announced the new strategy named Horizon 2020. Part of this strategy is the One ForFarmers approach, that aims to realise a more intensive cooperation within the group. Within the framework of this programme a start was made to rebrand the activities in the United Kingdom to the ForFarmers brand and this brand will be carried by all ForFarmers companies within six months.

In addition a start was made with the investment to strengthen our organisation. The professionalisation and growth in scale or our farmer customers continues and their demands consequently change. Focus on the customer proposition combined with our strong operational efficiency enables us to further expand our market leadership. During the second half of 2014 the internal objectives resulting from the tightened strategy were developed further and implemented.


2014 results compared to 2013
The sales, measured in the Total Feed volume, increased by 5.0% over the entire year 2014. The acquisition effect is 3.2%. This increase can be traced to the swine sector and also to the layers sector. All countries contributed to the increase of the Total Feed volume. Total Feed includes compound feed, roughages, DML (Dry Moist Liquid) and other products (f.e. fertilisers).

The revenue that was realised during the 2014 financial year amounts to  € 2,292 million (including acquisitions of € 41.7 million), which compared to the 2013 financial year indicates a decline of € 180.2 million (7.3%), including foreign exchange effects. This decline is the result of falling prices of raw materials in 2014 that were passed on to customers.

In the past financial year the gross profit increased from € 390.4 million to € 408.1 million (4.5%). The effect of acquisitions amounts to approximately € 11.2 million. In addition the effect of the price development of the British Pound contributed to a higher margin of € 6.9 million. The gross profit in the United Kingdom in 2014 was affected negatively by the relatively warm weather in the first months of the financial year (approximately € 2.2 million) compared to the same period in 2013. In addition the margin was under pressure in the DML (Dry Moist Liquid) segment in the United Kingdom as the longer-term purchase prices were fixed (approximately € 2.5 million). Adjusted for these effects the gross profit increased by approximately € 4.3 million (1.1%). In the Netherlands the gross profit remained almost steady; an increase could be observed in the other countries.

In 2014 ForFarmers sold the export activities of BOCM PAULS International to Nutreco (proceeds € 1.9 million). The net proceeds from this transaction were recorded under other operating income. The sale of the share in Subli (proceeds € 0.2 million), which was sold to AgruniekRijnvalei as at 15 July 2014, was also recorded under this heading. The effects of these sales proceeds were adjusted in the underlying operating result excluding incidental items.

The operating expenses increased from € 351.5 million in 2013 to € 355.6 million in 2014. The operational costs decline by 1.0% in case of adjustment for the amounts indicated below. In both years there was a non-recurring charge of € 2.1 million (2014) and € 2.0 million (2013) as a result of the proposed closing down of a plant in Deventer and the downward valuation of land in 2013 (the effects hereof were adjusted in the underlying operating result). As a result of the acquisitions the costs increased by € 9.4 million, the currency exchange effect amounts to € 5.9 million. Adjusted for these effects the costs declined by € 11.2 million. This decline is partly due to the fact that in 2013 € 9.0 million were added to the provision for bad debts. The operating expenses also include, compared to the previous year, non-recurring costs that are related to the study of and the preparation for the potential public exchange listing as well as the additional costs as a result of the bird flu (€ 1.0 million) at the end of 2014.

The operating result increased to € 59.1 million compared to € 43.4 million in 2013. All countries contributed to this increase. The operating result excluding acquisitions (€ 1.7 million) and foreign exchange (€ 0.9 million) effects amounted to € 56.5 million. The underlying operating result excluding incidental recurring items improved from € 45.4 million in 2013 to € 59.2 million in 2014 (30.3%). This improvement is explained above.

The result after taxes increased by 25.2% to € 39.0 million. In 2014 there was an additional funding costs (net € 1.5 million) as a result of the refinancing that was completed successfully in October 2014. The result in 2013 was affected positively by non-recurring proceeds of net € 1.6 million on account of the sale of the minority interest in Agrovision.

The production facilities of ForFarmers consist of the necessary capacity to meet the market demand. In the past year investments amounted to € 24.0 million (2013: € 29.1 million) and exceeded the level of the depreciation. In the past year investments were mostly made in transport assets that were previously leased in the UK. In addition, large investment projects are on-going at the locations in Lochem and Almelo. On account of the closing down of one of the plants in Deventer, investments were made in the other plants in order to facilitate the reallocation of the volume. In addition investments were made in the normal course of replacement of production and transport assets and fitting out plants to the requirements of the production master plan. The investments for the 2015 financial year will be predominantly related to the regular replacement of production and transport assets. Through these replacements ForFarmers has the ambition of keeping its production and logistical processes at an optimal level and, where possible, improving.

In 2014 the number of employees increased to 2,343, based on fulltime-equivalent. Compared to 2013 this is an increase of 129 employees of which 124 can be explained by the acquisitions in the UK in 2014. In addition there is a slight increase in Germany, in particular due to increasing activity. ForFarmers keeps building on a world-class team in order to realise its strategic ambitions. By giving substance to the One ForFarmers way of working, investments are being made in the development of the organisation in the years to come. Further developments in the area of employees are included in the chapter Employee relations of this report.

Cash flows and funding
In the 2014 financial year ForFarmers was able to improve the cash flow from operational activities by € 35.2 million to € 90.1 million. This improvement is the result of a better operating result and an improvement of the operating capital that can be explained by the lower prices of raw materials, which results in a lower inventory position and a lower receivables level.

In addition in the 2014 financial year ForFarmers focused strongly on the control of the outstanding receivables balance, the first effects of which are already visible at the end of 2014. The total decline of the liquid assets by € 65.9 million can be explained by the refunding of the group, which took place in October 2014. With this refunding loans from banks were repaid and new loans were contracted, the net effect results in a decline of the liquid assets by € 103.0 million in 2014.

The newly concluded funding agreement has a continuous credit facility of € 300 million in multiple currencies (the ‘new facility’). This new facility replaces the facilities at ForFarmers B.V. and BOCM PAULS LTD., at the value of € 120 million and £ 86 million respectively with terms up to 2015, 2017, and 2019. The agreement for the new facility, which has a term up to 31 January 2020, is unsecured and designed for general operating activities.

The new facility means a larger, more flexible and uniform funding structure for ForFarmers B.V. with favourable terms and conditions. This offers ForFarmers optimal support during the organic growth and the acquisitions with which the company intends to realise its strategy.

ForFarmers complied with the bank covenants.

The solvency of the company increased from 43.7% in 2013 to 50.9% in 2014. This increase can be explained by the increase of the net result and thus the higher equity and due to the refunding as a result of which a considerable part of the non-current loans was repaid with existing resources. This resulted in a decline of the balance sheet total. The healthy balance sheet and the liquidity position of ForFarmers make it possible that the ambitions of the focused strategy, Horizon 2020, can be realised in a responsible manner.

Developments per country

In the Netherlands the Total Feed volume increased slightly compared to 2013 by 1.4%. This increase is basically caused by the increase of volume in co-products (DML). The sales of compound feed declined slightly (2.1%); this took place in all sectors with the exception of the broilers sector where a slight increase can be seen. The biggest decrease took place in poultry in the layers sector; here a permanent decline of the number of animals is noted resulting in a decline in demand for compound feed. The decline of the feed use is in line with the decline in the market. In the swine sector there is still the issue of a shrinking market as a result of which a number of farmers have decided to discontinue their activities, in particular in the east of the Netherlands. As a result of the remaining pig producers increasing in size, changes in feeding systems lead to an increase in the use of home mixing and a decline in the sales of compound feed.

The gross profit remained stable and amounts to  € 180.4 million. The contribution to the gross profit from the organic feed of Reudink is higher in 2014 than in 2013. This margin growth is caused by additional sales volumes resulting from the toll manufacturing activities for Agrifirm. Finally there was a good roughage and arable farming season which resulted in higher volume, mostly in the first half of 2014 compared to last year, contributing positively to the gross profit.

The sale of the share in Subli as at 15 July 2014 resulted in extraordinary proceeds that were recorded under other operating income. However, the closing down of the plant in Deventer resulted in non-recurring costs of € 2.1 million.

Germany and Belgium

With regard to Germany there was growth of the Total Feed volume (9.3%). In particular the swine and layers sector contributed to the increase in sales and the cattle sector stabilised in a declining market. In addition the sales of simple feed increased. The sales efforts that were made in the first half of 2014 form the basis for the growth in sales. The focus on specific expanding sectors also contributed to growth, in particular in the swine sector. The higher sales resulted in a higher gross profit to € 58.0 million in 2014. The positive developments at the transhipment activities of the joint venture HaBeMa also contributed to the improvement in gross profit.

In 2014 the volume of Total Feed increased by 2.5%, in particular due to the increase of new customers in the swine and cattle sectors. The poultry sector declined in approximately the same proportions. The gross profit increases to € 24.2 million, inter alia due to the volume effect in compound feed but also due to the effect of the synergies in the area of nutritional knowledge.

United Kingdom
The Total Feed volume increased again by 8.3%, basically due to the acquisition of HST Feeds on 1 February 2014 and Wheyfeed on 1 July 2014. Excluding these acquisitions there was a slight decrease in volume of 1.7%. The swine and poultry sectors performed well in terms of volume whilst the volume in the cattle sector declined slightly. In the first half of 2014 there was a slight decrease, mostly explained by the contrasting weather conditions in the first half of 2014 compared to 2013, in the second half of 2014 there is question of an increase. In addition the margin was under pressure in the DML (Dry Moist Liquid) segment as the longer-term purchase prices were fixed. The gross profit in 2014 increased, basically due to acquisition effects and currency exchange effects. The autonomous gross profit declined slightly due to the aforementioned weather conditions and the margin in the DML segment. In the second half of 2014 additional costs were incurred as a result of the change to One ForFarmers. The costs were incurred for the ‘rebranding’. Compared to 2013 the total operating expenses were lower, partly because in 2013 an additional allocation was made to the receivables provision.

In 2014 ForFarmers sold the export activities of BOCM PAULS International to Nutreco. A non-recurring income of approximately € 1.9 million derives from this transaction, which was recorded as other operating income.

Dividend proposal
It is proposed to pay out 50% of the result after taxes, adjusted for extraordinary results (e.g. book profits and taking taxes into account), as dividend. This corresponds to an amount of € 18.7 million. The proposal is to pay out € 0.176 (2013: € 0.136) per depositary receipt, an increase of 29.4%.

Special developments
In conformity with the authorisation granted by the General Meeting (GM) to appoint a new auditor the Board of Supervisory Directors appointed KPMG Accountants N.V. With effect from the 2014 financial year KPMG Accountants N.V. will perform the audit of the annual accounts of ForFarmers B.V.

The current economic conditions as well as the development in legislation and regulations compel farmers in all segments that ForFarmers is active in to further professionalise. This offers opportunities to ForFarmers for further growth through segmentation in its customer approach. The expansion of the Total Feed concept also offers ForFarmers the possibility of offering a large product portfolio to both existing and new customers in the four home countries.

In the coming year ForFarmers will continue investing in the professionalisation of the organisation and the further implementation of One for Farmers to be able to increase operational efficiency. Costs will also be incurred within the framework of the rebranding.

The returns in the sectors of our customers are under pressure. These returns are influenced by:

  • Export restrictions to Russia;
  • Changes in consumer needs;
  • Changes in legislation and regulations;
  • Porcine Epidemic Diarrhoea (PED) developments in the swine segment;
  • Increasing milk volumes and decreasing milk prices in the cattle segment.

The prices of raw materials will continue fluctuating in the coming year due to the uncertainty regarding world economic developments and political instability. In addition the changing flow of information relating to harvest expectations also has a considerable influence on pricing. This continuing fluctuation in the prices of raw materials will also affect the returns of our customers and ForFarmers. The exchange rate fluctuations between the British Pound and the euro may also affect the result of ForFarmers.

ForFarmers does not make any specific statements about the result forecasts for 2015. The aim is to increase the profit in the long term and to become one of the best performing companies in the industry.