European feed manufacturer ForFarmers has reported better than expected second quarter figures, with cost recovery from customers lifting its first half financial results. The domestic operation, ForFarmers UK reduced its first half losses.
ForFarmers UK has reported an Earnings Before Interest and Tax (EBIT) figure of -€1.46 million on revenues of €378.10m for the six months ended June 30th 2022, compared to a -€2.35m and €321.45m in the first half of 2021. UK Total Feed volumes in the period dropped 4.4% to 1.18m million tonnes (1.23m tonnes in H1 2021).
The company notes that gross UK profitability increased, despite the reduced volume, as higher feed material and energy prices were largely passed onto customers. However, as rising energy costs could not be fully recouped from the market, there was a decline in underlying EBITDA.
The UK market saw volumes fall across all UK species sectors in the half year. The company says difficulties in fully passing on increased production costs led to a small loss of ruminant customers. Pig feed sales were also down year-on-year, reflecting the loss of a major account in April 2021, although excluding this customer, pig sales were positive. While there was slight growth in broiler poultry feed sales, this was more than offset by a decline in layer volumes as the company withdrew from unprofitable business.
The period saw continued labour shortages in the UK, partly caused by Brexit and exacerbated by the Covid control measures and their aftermath, notes the company. This led to a constraints across the agricultural supply chain, with fewer drivers, skilled farm workers and abattoir personnel. This was most obvious in the pig sector, with lower slaughterhouse capacity leading to pigs backing up on farm, a consequent increase in production costs and worsening feed conversion efficiencies.
Layer feed volumes suffered from the market failing to compensate for higher feed costs through the retail egg price, with the result that egg production declined. The aftermath of Covid, together with Avian Influenza disease, also had an effect. “Generally speaking, feed companies in the UK saw price competition increase even further, in the wake of increasing energy and commodity prices,” notes the company.
ForFarmers UK opened the second half of the year with its announcement of a joint venture business with poultry feed specialist 2Agriculture, subject to regulatory approval. It says the move will enable it to serve a larger number of customers who are more evenly spread across the various sectors.
ForFarmers Group
At Group level, ForFarmers returned an EBIT of €19.1m from revenues of €1.6bn in the first six months of 2022, up from the €15m and €1.31bn twelve months earlier. The sharp increase in Group raw material and energy costs saw working capital requirements increase by €21.7m to €75.0m year-on-year.
Total feed volume was 4.53m tonnes, a fall of 7.4% from the 4.89m tonnes in H1 2021. Within Total Feed, compound feed volumes declined by 7.9% to 3.19m tonnes (3.46m tonnes). European pig compound sales fell in line with herd contractions in Holland and Germany – the former due to ‘warm restructuring scheme’ measures to reduce sector pollution and emissions. Germany saw a large number of producers exit the pig industry following animal health restrictions on the export of pigs to China, which dampened prices across Europe.
ForFarmers’ group ruminant and poultry sales both showed a slight decline in overall volumes, while poultry feed sales in Poland increased sharply amid volatile market conditions there.
Innovation highlights in the period include the Group’s Robotic Analysis Programme (RAP) to use dairy herd data analyses to inform individual animal, lactation and herd level advice – both on-farm and remotely. ForFarmers is part of a public-private Dutch poultry industry consortium exploring the use of protein derived from Black Soldier Fly larvae in poultry diets – specifically the effect on the sustainability, health and well-being of slow-growing broilers.
The business is also replacing soya meal in certain poultry rations in the Netherlands and Germany with processed animal proteins, following a relaxation in EU regulations, which it says is more sustainable.
Looking ahead, the Group expects raw material prices, energy, wage and transport costs to remain volatile and relatively high. It notes that the war in Ukraine is causing uncertainty over macroeconomic performance and, in turn, consumer confidence and disposable income. The longest European drought since at least 2018 is reducing water levels in key transport rivers and waterways in the Netherlands, Belgium and Germany. This adds to costs which are already high after the pandemic and war in Ukraine.
In the longer term, it notes growing pressure on agriculture to become more sustainable, with a shift towards more extensive production systems that focus less on yield and more on quality, including well-being concepts. This will bring both challenges and opportunities – the supply chain has an important role to play in implementing innovative sustainable feed concepts that reduce farm carbon footprints – for example further improvement of feed conversion ratios. It also anticipates more demand for organic feed and advice.
The Group is to review its Build to Grow 2025 medium term strategy in the light of current changes and challenges facing agriculture, with a report due by the end of 2022. The board has made a provision of €1.6m in the first half figures for this strategy review and work around the intended merger of ForFarmers UK and 2Agriculture.
“These better-than-originally-expected first-half figures are mainly due to the second quarter results, notes new Group chief executive Chris Deen. “This is a great achievement by the team amid challenging market conditions due to the war in Ukraine and the consequential further increase in raw material and energy prices.
“Looking ahead, there are still many uncertainties at present, especially due to the war in Ukraine. In addition, we need to consider a possible new Covid wave and the low water levels in the rivers in the Netherlands. In view of this we consider it unwise to provide any guidance about the expected development of the results in the second half of 2022 or a possible resumption of the share buy-back programme.”