Rising ruminant and poultry feed demand lifted ForFarmers’ UK feed volumes over the last year, increasing the domestic arm’s profitability by 42% and raising revenues 6.4%.
ForFarmers UK has reported earnings before interest and tax (EBIT) of €7.63 million on revenues of €662.23m in the year to December 31st 2018, compared to €5.35m and €622.40m in the previous year. Feed volumes were marginally down to 2.903 million tonnes from the 2.907m tonnes in 2017. While like for like volumes fell, this was masked by a small acquisition in May 2017.
UK operations were helped by rising milk prices during the year and the exceptional weather – a cold, late spring meant ruminant animals were housed longer, followed by a hot dry summer that reduced grass growth, with grazing and forage stocks needing supplementation with finished feeds and straights.
Pig feed volumes contracted, with the ongoing consolidation of the sector into fewer, larger players making it harder to maintain margins. The company notes the UK pig industry missed the opportunity to raise sow numbers and national pigmeat self-sufficiency in 2018, as it faced competitive imported product from the continent and continued Brexit uncertainty.
The company’s poultry feed volumes increased, reflecting growing consumer demand for poultry products, and helped by the successful launch of the company’s Apollo programme.
The UK business saw 3.4% higher operating expenses, through higher energy and fuel prices, plus additional training costs for new drivers to raise delivery service levels – a problem in the previous year as some EU nationals left the company. Depreciation costs also rose, following the £10m investment in rebuilding the Exeter feedmill last year, plus a switch from leased to owned delivery vehicles.
ForFarmers says its merger of legacy UK ruminant sales teams into a single commercial structure is complete, and two trading desks have been merged into one Total Feed support desk. The company is upgrading a number of mills – including Portbury – as it seeks to rationalise its manufacturing footprint. Last month, ForFarmers announced it was consulting over the closure of its Blandford Forum feedmill in Dorset.
At Group level, ForFarmers made an EBIT of €75.93m on revenues of €2.40 billion in 2018, up from the €74.02m and €2.22bn from 2017. The business produced 10.02m tonnes of feed products across all its country markets – the first EU feed manufacturer to pass this figure.
Apart from the UK results, The Netherlands contributed an EBIT of €69.19m on sales of €1.15bn; and the Belgium/Germany/Poland cluster €13.8m on €665.26m.
Group costs were higher in the second half due to the hot summer. Feed material costs rose rapidly after the small cereals harvest in Europe, and logistics were affected by low water levels in the river and canal network in The Netherlands and Germany. These could not be fully recovered through higher product prices.
Milk prices were 2% higher over the year, average pig prices down by 12% and egg prices down after 2017’s relative high, with broiler values up slightly.
Looking ahead, the company expects the global demand for animal protein to increase. Although this is stable in Europe, it should incentivise EU meat and dairy product exporters. Threats are the growing consumer environmental and animal welfare concerns in Europe – particularly demand for GM-free soya in Germany and Poland – which lift farm production costs and the presence of African Swine Fever in Belgium.
“2018 was a year of two sides for us,” states ForFarmers chief executive Yoram Knoop. “In terms of strategy we made progress by, amongst others, acquiring four companies. Consequently, we are now operational in five countries and have more sales opportunities in the expanding poultry sector. Our portfolio segmentation across the various species is more in balance: volumes are more equally divided over the ruminant, swine and poultry sector.
“Taking into consideration the 2018 results and mindful of the current market circumstances, we consider it wise to reduce the organisation’s cost base over the next two years by implementing extra group-wide efficiency plans. This will involve reducing the number of mills and our headcount as a result of further standardisation and optimisation of our processes. At the same time we will continue to invest in our supply chain and in the introduction of innovative (digital) concepts for our customers.
“Due to a temporary unfavourable purchase position, we expect our 2019 first half results to show a strong decline compared to H1 2018, but we are confident in the outlook thereafter.”