National multispecies feed manufacturer ForFarmers UK has reported a sharp drop in 2019‘s underlying profitability after a very strong prior year. But slower than expected volume growth in the UK market has led to the Dutch parent group imposing a €25.6 million impairment charge.

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The UK operation has reported a negative earnings before tax and interest (EBIT) figure of -€22.93 million on revenues of €642.71m in the year ended December 31st 2019, compared to a positive €7.63m and €662.23m in 2018. Underlying EBIT before the impairment charge was a negative -€5.5m in the latest year from the €8.27m in 2018 – a 33% fall.

The total UK feed tonnage for the year was 2.66 million tonnes, down by 7.7% on the €2.91m tonnes in 2018. Ruminant compound feed volumes declined over 2019. Despite a slight reduction in dairy cow numbers, higher output per cow saw a 2% rise in milk volumes year-on-year. The milk price declined, especially over the second half.

But there was ample forage following a good 2019 growing season – in contrast to the previous year when forage was short and farmers had to buy in additional feed. Sheep feed demand fell sharply, with the decision of many sheep farmers to sell lambs earlier in the year due to uncertainty over Brexit adding to the problem.

While UK pig prices rose over 2019, this was at a lower rate than in continental Europe. The consolidation of production into fewer, larger units continues, with a small decrease in the national herd. Pig feed volumes fell with tighter competition for a smaller number of accounts, especially as a major customer carried fewer animals in the period. The company’s UK poultry feed volumes increased.

Gross profitability in the UK fell by 3.6% over the year, with an unfavourable first half purchasing position affecting full year results. However, the company increased its margin per tonne in the second half.

ForFarmers’ underlying UK operating expenses fell by 1.5%, with a reduction in staffing costs following the closure of the Crewe and Blandford feed mills in 2019. In turn, this reduced production and distribution costs, with overhead allocations €0.1m down on the previous year.

“The outcome of the goodwill impairment test with respect to the activities in the UK resulted in an impairment of €25.6 million,” reports the company. “Volume development in the UK is slower than anticipated, which is why an impairment is required.”

The ForFarmers group has reported an EBIT of €14.2m on revenues of €2.46 billion, a respective 2.4% increase and 81% fall on the €75.9m and €2.40bn from 2018. Total feed volumes were up 0.7% to 10.095m tonnes (10.021m tonnes) of which 7.08m tonnes were compounds (6.95m tonnes).

“2019 was a difficult and turbulent year for us,” concedes ForFarmers chief executive Yoram Knoop. “We were faced with the consequences of an unfavourable purchasing position, as a result of which the first half 2019 result was under severe pressure. We have since further tightened our purchasing procedure in order to minimise the chance of such a risk recurring.

“In the second half of 2019, we realised better results despite a further like-for-like volume decline due to challenging market circumstances in all countries except for Poland. This was, among other things, due to the implementation of our efficiency plans, which included the closure of five mills. We are well on track with the plan to make €10 million cost savings in 2021 compared to 2018.

“The integration of the four companies which we acquired in 2018 has been completed. Our market positions have been strengthened through these acquisitions. We are pleased Tasomix’s volumes are increasing in the growth market Poland. Consequently, our market share in the growing European poultry sector is expanding.”

Mr Knoop says political pressure in The Netherlands to reduce nitrogen emissions is creating an uncertain outlook for livestock farming. Although the government says the intention is not to reduce livestock numbers, there will be a small decline. But ForFarmers can play an important role in helping farmers become more sustainable – it is investing in training its advisers to disseminate innovative feed concepts, advice and digital tools on farm. It is also highlighting the usage of residual flows – co-products – from the food industry that are not suitable for direct human consumption in animal feed formulations.

Animal disease is also a concern – while African swine fever in China actually increased EU pigmeat sales to that country, the disease is now present in wild boars in Poland and close to the German border. The contagious version of avian flu has also been detected among wild birds in Poland. The industry cannot be complacent – “we are monitoring this closely. During past years important steps have been made in determining hygiene protocols and in collaboration in the sector to combat spreading of animal diseases,” says Mr Knoop.