National feed manufacturer ForFarmers saw increased UK feed volumes in the third quarter of fiscal 2017, the first sales growth this year in what remains a “difficult” UK market. But lower product margins and logistics problems caused by a shortage of drivers affected underlying results. No figures are available at this stage.
The company has reported increased total feed and compound volumes in the UK, as the dairy and pig markets recover from the low ex-farm milk and pigmeat prices seen in 2016. In turn, feed demand in these sectors is recovering. UK profitability in Q3 was “nearly equal” to the prior year period, after a decline across in the first half of 2017.
ForFarmers says its Feed2Milk concept has “noticeably increased” dairy feed demand, while it has also sold more pig feeds to larger pig farmer customers, albeit at lower average margins. “This forces us to sharpen our commercial proposition in order to achieve decent returns,” it notes.
The company reports a higher than usual turnover of drivers, “as a result of many non-UK drivers leaving the UK due to concerns around Brexit”. This shortage led to difficulties in providing a reliable delivery service to customers. In turn, the UK operational costs increased temporarily, reflected in a lower underlying result. The difficulties also delayed the roll-out of ForFarmers’ supply chain optimisation plans in the UK.
The business says it is addressing the driver shortage, and there are already signs of a “strong recovery”. It is also on track to open the new £10 million feed plant at its Exeter site by the end of this year.
The ForFarmers Group reports increased volumes across all four of its European markets – the Netherlands, Germany, Belgium and the UK, and higher profitability despite the weakness of sterling. Group revenues are up in line with bigger volumes and rising prices, with the overall gross profit also higher, despite the negative sterling exchange effect.
The rate of compound feed growth outstripped that for total feeds, indicating that the financial situation of farmers has improved, particularly for milk and pig producers, leading to more demand for value-added feeds. The anticipated squeeze in Dutch dairy volumes following restrictions on phosphate in the environment from March failed to materialise – dairy volumes actually increased as farmers focussed on yield per animal, rather than the whole herd, while prices are high. The period also saw the launch of the Nova sow feeding concept across all four country markets.
“Our third quarter results paint a positive but varied picture,” says ForFarmers chief executive Yoram Knoop. “We have sold more volume in all clusters. In addition, the product mix improved, particularly on the Continent, which led to a better gross profit. In the UK, however, we are facing challenges, both in the market as in our own organisation. The reliability of our service to our customers was negatively affected by a shortage of drivers. In order to improve the service levels, with which good progress has already been made, additional costs were made to deploy third party logistics providers. We still remain positive about our mid to long-term UK strategy.
● By the end of September, ForFarmers had spent €45.5 million on its share buyback programme – there is a maximum of €60m available.