ForFarmers sees contract challenges in pandemic hit market
Its Total Feed volumes rose due to the fact that like-for-like volumes remained virtually stable, in combination with the two acquisitions that the Dutch feed group finalized at the beginning of this year - De Hoop Mengvoeders and Mühldorfer Pferdefutter.
“However, retaining and strengthening our market positions in the current market circumstances, which have temporarily become very competitive especially due to the impact of COVID-19 measures, has led to margin erosion in a number of segments.
“In this context, a number of contracts were agreed upon in Germany of which pricing proved unfavorable for our margin. This has had an impact on both gross profit and underlying EBITDA in the past quarter and will also have a temporary impact in the coming months.
“It is expected that the total impact will be approximately €4m on underlying EBITDA in the first half-year of 2021,” said ForFarmers CEO, Yoram Knoop.
Consequently, the company expects underlying EBITDA in the first half-year of 2021 to be lower than in the comparative period last year.
The integration of the newly acquired assets is going according to plan, though, and will be completed later this year, added the CEO.
ForFarmers Q1 2021 results summary
- Volume Total Feed: up (1.8%); due to like-for-like volume growth in clusters Germany/Poland and the UK and due to the acquisition of De Hoop Mengvoeders in the Netherlands
- Volume compound feed: up (1.0%); the like-for-like volume growth in cluster Germany/Poland and the acquisition of De Hoop Mengvoeders was larger than the like-for-like volume decline in clusters Netherlands/Belgium and the UK.
- Gross profit: down (-2.8%); the growth in cluster Netherlands/Belgium could not compensate the unexpected decline in cluster Germany/Poland in combination with the decline in the UK.
- Underlying EBITDA: down (-12.8%); due to gross profit decline and despite like-for-like cost savings.
Pricing trends
Over the past few months, prices for dairy, meat and eggs have been rising again, noted the company, after having been substantially under pressure for a year, due to the impact of pandemic restrictions.
“At the end of the first quarter of 2021, prices had approximately returned to the level of a year earlier. However, liquidity positions of farmers have not yet recovered from the impact of the low prices during 2020. In some regions, this is still noticeable in farmers’ purchasing behavior relating to feed. In addition, raw material prices have risen significantly in the past few months."
Investment in facilities
As part of its efficiency drive and in line with its goal to strengthen its position in Germany and enhance its standing in the field of concentrates and specialties, the company said it has decided to invest in the mill in Beelitz and to close its facility in Bardenitz.
Volumes produced in Bardenitz will be transferred to the Beelitz mill, which is expected to be completed by the beginning of 2022.
Carbon footprint
And a start, it said, has recently been made on optimizing the logistics infrastructure of the joint venture, HaBeMa, in Germany, an organization that provides services to feed companies, such as transshipment activities.
“Together with the joint venture partner and supported by a government subsidy, ForFarmers is investing in a new transshipment facility which is located next to a railway station. As a result, the carbon footprint of these activities will substantially improve and logistics and transshipments costs per ton will decrease.”
Outlook
The closure of the hospitality sector and the out-of-home segment has taken longer than was originally expected, according to ForFarmers. It assumes, though, that agricultural markets will recover reasonably soon after COVID-19 related measures have been lifted.
In terms of the nitrogen policy in the Netherlands and its impact on farmers, it is right now a wait and see situation in terms of any new measures. The roll-out of that strategy depends very much on the incoming government, which is currently being formed, it added.
The feed manufacturer warned that outbreaks of animal diseases continue to pose a risk for the livestock industry.
In the fourth quarter of 2020, African swine fever (ASF) was detected only among wild boars in East Germany. Restricted zones have been installed and hygiene measures taken to prevent the disease from spreading. Nevertheless, non-EU countries have imposed import bans on pig meat from Germany. Meanwhile, in Belgium and in the Netherlands, poultry farmers are required to keep their animals indoors, due an outbreak of avian influenza, it noted.
Overall, ForFarmers said it remains positive with respect to “realizing the long-term integrated objectives, including the financial objectives for 2025 such as attaining underlying EBITDA of between €125m and €135m on the back of both organic growth and acquisitions.”
