Quarterly Report • Aug 15, 2019
Quarterly Report
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Lochem, 15 August 2019
[2] 'Total Feed' covers the entire ForFarmers product portfolio and comprises compound feed, specialties, co-prodcucts (including DML products), seeds and other products (such as forage)
[3] Explanatory notes on like-for-like developments are exclusive of the contribution of Tasomix and therefore Poland, as Tasomix was acquired on 2 July 2018 [4] Underlying means excluding incidental items, see Note 12 of the interim financial statements on Alternative Performance Measures
[1] Results for the first half of 2019 are compared to the results for the same period of 2018; there was virtually no impact from currency translation in the first half of 2019, the percentages are disclosed in the table on the consolidated key figures
"The results for the first-half of 2019 were disappointing, but in line with our expectations as disclosed in the firstquarter trading update. The acquisitions, which we made in the second-half of 2018, made a positive contribution but this was not enough to offset the negative effects of the volume decline and the unfavourable purchasing position which we experienced in the first half of the year. We have reviewed and tightened up our purchasing procedures including having shortened the permitted purchasing coverage lengths for important raw materials.
Since announcing our efficiency plans in March, we have revealed plans to close four mills this year. These plans will contribute to the targeted structural cost savings of €10 million by 2021.
In more and more countries the agricultural sector is, amongst others, being faced with government measures to reduce the environmental impact of the sector. We will take into account the speed and intensity with which such measures are being introduced in the strategy for the period 2020 up to 2025. This strategy will be finalised in the first-half of 2020. As ForFarmers has strong positions in countries where the production of animal proteins is very carbon-efficient, we are able to continue to play a sustainable role for the future of farming and consequently in the chain that supplies the growing world population with animal proteins."
| For the six months ended 30 June |
||||||
|---|---|---|---|---|---|---|
| In millions of euro (unless indicated otherwise) | 2019 | 2018 | Total change in % |
Currency Acquisition Like-for-like (3) |
||
| Total Feed volume (x 1.000 ton) | 5,079 | 4,825 | 5.2% | 6.8% | -1.6% | |
| Compound feed | 3,561 | 3,322 | 7.2% | 9.8% | -2.6% | |
| Revenue | 1,274.4 | 1,141.6 | 11.6% | 0.3% | 8.7% | 2.6% |
| Gross profit | 214.1 | 217.7 | -1.7% | 0.3% | 6.6% | -8.6% |
| Operating expenses | -206.3 | -177.6 | 16.2% | 0.4% | 7.9% | 7.9% |
| Underlying operating expenses | -198.4 | -178.1 | 11.4% | 0.4% | 7.9% | 3.1% |
| EBITDA | 33.5 | 57.2 | -41.4% | 0.2% | 7.5% | -49.1% |
| Underlying EBITDA(1) | 35.8 | 52.3 | -31.5% | 0.2% | 8.2% | -39.9% |
| EBIT | 9.0 | 45.0 | -80.1% | 0.1% | 1.3% | -81.5% |
| Underlying EBIT(1) | 16.0 | 39.7 | -59.9% | 0.1% | 1.6% | -61.6% |
| Profit attributable to shareholders of the Company | 9.0 | 34.8 | -74.1% | 0.1% | 6.9% | -81.1% |
| Underlying profit(1) | 11.9 | 30.8 | -61.5% | 0.1% | 7.7% | -69.4% |
| Net cash from operating activities | 4.8 | 40.1 | -88.0% | |||
| Underlying EBITDA / Gross profit | 16.7% | 24.0% | -30.4% | |||
| ROACE on underlying EBITDA(2) | 15.6% | 26.3% | ||||
| ROACE on underlying EBIT(2) | 8.9% | 20.0% | ||||
| Basic earnings per share (x €1) | 0.09 | 0.35 | -74.3% | |||
| Underlying earnings per share (x €1) | 0.12 | 0.31 | -61.4% |
(1) Underlying means excluding incidental items (see Note 12 regarding the Alternative Performance Measures (APMs)).
(2) ROACE means underlying EBITDA (EBIT) divided by 12-month average capital employed. (3) Like for like is the change excluding currency impact and acquisitions and divestments.
Note, percentages are presented based on the rounded amounts in million euro. Additions may lead to slight differences due to roundings.
Alternative Performance Measures are being used in order to provide a better insight into ForFarmers' business development and financial performance. These are the core metrics which are presented as 'underlying' (i.e. excluding incidental items) and clarified on the level of operating expenses, depreciations, EBIT, EBITDA, finance costs and profit. For further explanation on the Alternative Performance Measures (APMs), see Note 12 of the enclosed interim financial statements 2019.
Total Feed volume was up 5.2% at 5.1 million tonnes, with the acquisitions (in Poland, the Netherlands and Belgium) contributing 6.8%. Like-for-like volume declined by 1.6%. Volumes declined in the Netherlands, Belgium and the United Kingdom.
Compound feed volume, part of the Total Feed portfolio, rose by 7.2%, a larger increase (in percentage terms) than the volume growth of Total Feed. Acquisitions contributed a 9.8% increase in compound feed volume, while volume on a like-for-like basis declined by 2.6%.
The decrease in the cattle and pig herds in the Netherlands, which came on the back of factors including the (increasing) pressure on the agricultural sector to meet phosphate targets, had a negative impact on volumes. Compound feed volumes in the United Kingdom declined due to factors including more animals staying at pasture during the mild winter and consequently needing less additional feed. Volume also declined in the pig sector as a result of the commercial proposition aimed at improving margins. In Germany/Poland compound feed volume rose due to the acquisition of Tasomix (Poland) in July 2018 and as a result of attracting new customers in the poultry and pig sectors in Germany.
Revenue rose by 11.6% (€132.8 million) to €1,274 million, including an impact from acquisitions of +8.7%. Whilst there was a like-for-like decline in Total Feed volume the relating revenue increased by 2.6%. This was because the raw material prices in the first half of 2019 which were passed on to customers were higher than in the corresponding period of 2018.
Gross profit was 1.7% (€3.6 million) lower at €214.1 million. Acquisitions contributed +6.6%. Like-for-like gross profit declined by 8.6% mainly because of the unfavourable purchasing position that was not passed on to customers (in the Netherlands, Belgium and the United Kingdom) and following the like-for-like volume drop with a less profitable product mix (in percentage terms the like-for-like decline of compound feed volume was larger than of Total Feed volume). The results of the unfavourable purchasing positions, which had been taken at the end of 2018, have been taken in the 2019 first-half results.
Underlying total operating expenses were 11.4% (€20.3 million) higher at €198.4 million, with the impact of acquisitions being 7.9%. Like-for-like operating expenses rose by 3.1%. Employee benefit expenses increased through indexation of wages and other operating expenses rose on higher production costs and (third-party) transport costs due to higher diesel and energy prices. There was a minimal release (€0.05 million) from the provision for bad debts (first half-year 2018: release of €0.6 million).
Underlying depreciation1 grew by €7.2 million to €19.8 million mainly due to the acquisitions (€3.7 million). The impact of IFRS 16 was €2.5 million.
Underlying operating profit (EBIT) fell by 59.9% (€23.7 million) to €16.0 million as a result of a decline in gross profit and a rise in underlying operating expenses.
Underlying EBITDA fell by 31.5% (€16.5 million) to €35.8 million. The acquisitions contributed a positive 8.2%, whilst there was a like-for-like decline by 39.9%. As a consequence, the underlying EBITDA/gross profit ratio fell from 24.0% to 16.7%.
Underlying EBITDA at constant currencies declined by 31.7% (€16.6 million) to €35.7 million.
The contribution from German transhipment joint venture HaBeMa was up 58.3% at €1.7 million, mainly due to a recovery in trade volumes.
[1] Depreciation includes amortisations in this instance
Underlying net finance costs rose (from €1.2 million to €1.3 million), mainly as a result of financing the acquisitions and the effect of IFRS 16, somewhat mitigated by lower interest rates.
The underlying effective tax rate was 25.6% (2018: 20.3%). The higher tax rate was the result of nondeductible costs in 2019 in contrast to 2018 which included one-off positive adjustments.
Underlying profit was down 61.5% (€18.9 million) at €11.9 million. Underlying earnings per share fell by 61.4%.
Alternative Performance Measures and Incidental items The significant incidental items that have been excluded in the 2019 first half-year, because they are considered to be non-recurring and are not directly related to the operational performance of ForFarmers, are explained in more detail in Note 12 (Alternative Performance Measures) of the interim financial statements 2019.
The amounts in the four defined categories are:
| For the six months ended 30 June |
||||
|---|---|---|---|---|
| In millions of euro (pre-tax) | 2019 | 2018 | ||
| i) Net (reversal of) impairments | -4.7 | 0.5 | ||
| ii) Business Combinations and Divestments |
||||
| - Sale of properties and participating interests |
0.9 | 4.9 | ||
| - Interest accrual on earn outs and put-option liability |
-2.4 | 0.0 | ||
| - Remeasurement regarding the earn outs(1) |
5.0 | 0.0 | ||
| iii) Restructuring | -2.6 | 0.0 | ||
| iv) Other | -0.5 | 0.0 | ||
| Total APM items | -4.3 | 5.4 |
(1) The gain is the result of a lower valuation of the contingent considerations for the acquisitions in 2018
The effect of the incidental items on underlying EBITDA is as follows:
| For the six months ended 30 June |
||||||
|---|---|---|---|---|---|---|
| In millions of euro |
2019 | 2018 | ∆ | ∆% | ||
| EBITDA | 33.5 | 57.2 | - 23.7 | -41.4% | ||
| Gain on sale of investments and assets held for sale |
-0.9 | -4.9 | 4.0 | |||
| Restructuring cost |
2.6 | - | 2.6 | |||
| Other | 0.5 | - | 0.5 | |||
| Underlying EBITDA |
35.8 | 52.3 | - 16.5 | -31.5% | ||
| FX effect | -0.1 | - 0.1 | ||||
| Underlying EBITDA, at constant currencies |
35.7 | 52.3 | - 16.6 | -31.7% |
General remark: percentages are presented based on the rounded amounts in million euro. Additions may lead to slight differences due to roundings.
The number of employees as at 30 June 2019, presented in full-time equivalents (FTEs) was slightly higher at 2,663 than at 31 December 2019 (2,654). The increase in the number of employees particularly in Poland was almost completely offset by a decrease in FTEs in the United Kingdom following the closing of a mill, as part of the efficiency plans 2019-2020. As all the acquisitions happened in the second half of 2018, the total number of FTEs was 15% higher than at 30 June 2018.
| For the six months ended 30 June |
|||
|---|---|---|---|
| In thousands of euro | Note | 2019 | 2018 |
| Net cash from operating activities |
4,813 | 40,069 | |
| Net cash used in investing activities |
-14,086 | -6,306 | |
| Net cash used in financing activities |
-40,163 | -41,345 | |
| Net increase/decrease in cash and cash equivalents |
-49,436 | -7,582 | |
| Cash and cash equivalents at 1 January(1) |
38,449 | 111,607 | |
| Effect of movements in exchange rates on cash held |
722 | -1,871 | |
| Cash and cash equivalents as at 30 June(1) |
-10,265 | 102,154 |
(1) Net of bank overdrafts
| In millions of euro | 30 juni 2019 | 31 december 2018 |
|---|---|---|
| Total Assets | 899.8 | 873.7 |
| Equity | 414.2 | 440.8 |
| Solvency ratio(1) | 46.0% | 50.4% |
| Net working capital | 91.4 | 76.3 |
| - Current assets(2) | 351.6 | 350.6 |
| - Current liabilities(3) | 266.9 | 277.2 |
| Overdue receivables | 17.9% | 18.7% |
| Net Debt / (Cash)(4) | 60.8 | 16.5 |
(1) Solvency ratio is equity divided by total assets.
(2) Current assets excluding cash and cash equivalents.
(3) Current liabilities excluding bank overdrafts. (4) Net Debt / (Cash) excluding IFRS 16 lease liabilities
General remark: additions may lead to small differences due to roundings.
Group equity decreased by €26.6 million to €414.2 million over the first six months of 2019 compared to 31 December 2018. The decrease was the result of the addition of the 2019 first half profit (€9.2 million) minus the dividend distribution (€30.5 million) and minus €2.3 million for the 2019 share buy-back programme. Other comprehensive income was directly recognised in group equity and comprised a remeasurement (-€3.7 million) of
defined benefit liabilities (mainly in the United Kingdom) and cash flow hedges combined with currency translation differences (€0.8 million).
Solvency decreased from 50.4% at end-2018 to 46.0% at 30 June 2019.
The net debt position (the net balance of long and shortterm available cash and cash equivalents minus bank loans and other borrowings) was €60.8 million (end-2018: €17.1 million). The net increase of the net debt position was largely attributable to the lower operating cash flow, the investment programme, dividend distribution and the share buy-back programme.
Net working capital increased to €91.4 million at 30 June 2019 from €76.3 million at end-2018. This was due to factors including a higher accounts receivable balance in the Netherlands. At 30 June 2019 accounts receivable were virtually equal compared to at year-end 2018. The percentage of overdue receivables declined however, from 18.7% at end-2018 to
17.9% at 30 June 2019.
Capital investments in tangible and intangible fixed assets equalled €16.8 million (first half-year 2018: €16.3 million) with maintenance investments having been made as well as investments in mills (such as extension and innovations) to support the efficiency plans.
Net cash flow from operating activities fell from €40.1 million to €4.8 million, mainly due to the lower result over the period and the increase in working capital.
ROACE1 was down from 26.3% to 15.6% due to the lower gross profit in the Netherlands/Belgium and the United Kingdom and the increase in capital employed, due to the acquisitions and the new mill in Pionki (Poland) which has not reached full utilisation. ROACE based on underlying EBIT fell from 20.0% to 8.9%.
[1] ROACE is underlying EBITDA divided by 12-month average capital employed
As of 2019 the classification of the reporting clusters has changed as a result of the acquisitions and the resulting changes in the market positions in the various countries. The results of ForFarmers Belgium are included in the Netherlands/Belgium cluster as of 1 January 2019. The remaining clusters are: Germany/Poland, the United Kingdom and the 'Central and support expenses' cluster. The 2018 figures for the clusters have been restated for comparison purposes.
Average European milk prices fell somewhat in the first six months of 2019, but were higher in the second quarter of 2019 compared to both last year and the five-year
average. Average prices for pigs rose strongly in the second quarter of 2019 following the outbreak of African swine fever in Asia and the resulting significant decline in the pig herd. Pig prices were higher, on average, than last year and the five-year average.
Average egg prices fell slightly compared to the beginning of 2019, with prices in June being virtually equal to last year and the five-year average. The average price level in the first six months of 2019 was lower than last year when egg prices started at a high level. Prices for broilers fluctuated in the first half of 2019, at approximately the level of the five-year average. In the second quarter of 2019 prices started to rise and are now higher than last year.
| For the six months ended 30 June | |||||
|---|---|---|---|---|---|
| In thousands of euro | 2019 | 2018 | ∆% | ||
| Total Feed volume (in tons) | 2,585,657 | 2,559,704 | 1.0% | ||
| Revenue | 657,337 | 629,431 | |||
| Gross profit | 116,799 | 126,948 | -8.0% | ||
| Other operating income | 125 | 4,704 | -97.3% | ||
| Operating expenses incl depreciation & amortisation | -99,478 | -88,312 | 12.6% | ||
| Underlying expenses incl depreciation & amortisation | -95,739 | -88,796 | 7.8% | ||
| EBITDA | 26,338 | 46,617 | -43.5% | ||
| Underlying EBITDA | 27,515 | 42,108 | -34.7% | ||
| Underlying depreciation and amortisation | -6,330 | -3,761 | 68.3% | ||
| EBIT | 17,446 | 43,340 | -59.7% | ||
| Underlying EBIT | 21,185 | 38,347 | -44.8% | ||
| Underlying EBITDA / Gross profit | 23.6% | 33.2% | |||
| ROACE on underlying EBITDA | 35.4% | 52.9% |
All livestock farmers are being affected by the growing pressure being put on the agricultural sector by the Dutch government to achieve environmental targets. The CBS (Central Bureau of Statistics) announced recently that the number of dairy cows in the Netherlands declined by 2% in the first quarter of 2019 compared to a year earlier as a result of measures introduced previously aimed at reducing phosphate emissions. Phosphate production is
currently below the phosphate ceiling imposed on the Dutch cattle sector by the European Union. The outline agreement 'Warm restructuring of pig farming' continues to put pressure on pig farmers in the Netherlands to reduce their herds. This downward trend is expected to continue in the coming years. Market conditions in the poultry sector were relatively stable for broiler farmers during the first half of 2019, but challenging for layer farmers.
In addition, the consequences of rejection of the Nitrogen Approach Programme are not yet clear for the agricultural sector.
In Belgium there is an increasing focus on reducing antibiotics in feed and growing consumer demand for non-GMO foodstuffs, boosting demand for non-GMO feed. The pig sector in Belgium continues to be faced with the threat of African swine fever which so far has only been detected among wild boars. This situation seems to be under control now.
Poultry farmers are worried about the outbreak of Asian bird flu. Hygiene protocols have been implemented throughout Belgium to reduce the risk of the disease spreading further.
Total Feed volume increased by 1.0% to 2.6 million tonnes due to the acquisition of Voeders Algoet (Belgium), van Gorp Biologische Voeders and Maatman (both in the Netherlands). Like-for-like volume decreased mainly because there were fewer cattle and pigs than last year. The decline in compound feed volume was greater (in percentage terms) than for Total Feed. Reudink, the biological (organic) feed company, realised volume growth on the back of the acquisition of Van Gorp Biologische
Voeders. The integration process of these acquisitions is progressing according to plan. It remains challenging to retain all customers during integration processes.
Gross profit declined by 8.0%, mainly as a result of the unfavourable purchasing position and lower volumes.
Underlying operating expenses increased by 7.8%, due to additional costs relating to the acquisitions as well as higher energy costs, external transport costs and integration costs. Employee benefit expenses increased through indexation of wages and the rise in the number of FTEs (reopening of the mill in Deventer). There was a lower release from the allowance for bad debts in 2019 than in 2018. As a result of the applied transfer policy, overhead cost allocation was €2.2 million lower than last year.
Underlying EBITDA declined by 34.7% as a result of the limited volume growth, lower gross profit and the increase in the underlying operating expenses. The underlying EBITDA/gross profit ratio consequently decreased from 33.2% to 23.6%.
ROACE (based on underlying EBITDA) decreased from 52.9% to 35.4% due to the lower underlying EBITDA and the higher capital employed following the acquisitions.
| For the six months ended 30 June | ||||||
|---|---|---|---|---|---|---|
| In thousands of euro | 2019 | 2018 | ∆% | |||
| Total Feed volume (in tons) | 1,102,754 | 817,425 | 34.9% | |||
| Revenue | 298,770 | 210,771 | 41.8% | |||
| Gross profit | 36,127 | 27,107 | 33.3% | |||
| Other operating income | 147 | -3 | ||||
| Operating expenses incl depreciation & amortisation | -35,729 | -22,864 | 56.3% | |||
| Underlying expenses incl depreciation & amortisation | -34,843 | -22,864 | 52.4% | |||
| EBITDA | 5,334 | 5,584 | -4.5% | |||
| Underlying EBITDA | 5,892 | 5,584 | 5.5% | |||
| Underlying depreciation and amortisation | -4,461 | -1,344 | 231.9% | |||
| EBIT | 545 | 4,240 | -87.1% | |||
| Underlying EBIT | 1,431 | 4,240 | -66.3% | |||
| Underlying EBITDA / Gross profit | 16.3% | 20.6% | ||||
| ROACE on underlying EBITDA | 8.0% | 22.7% |
The broiler sector in Poland continues to grow as more slaughter capacity becomes available to leverage the export possibilities. Prices of broilers rose strongly in the first half of 2019 compared to the price level during the second half of 2018. The ruminant sector is growing substantially. African swine fever appears to be spreading.
In Germany it is becoming more and more important to reduce the environmental impact of phosphate and nitrate in the pig sector in particular. This is resulting in measures including offering farmers subsidies to cease farming, comparable to the warm restructuring initiatives in the Netherlands.
Total Feed volume increased by 34.9% to 1.1 million tonnes with most of the increase (31.0% or 285,000 tonnes) attributable to the acquisition of Tasomix in Poland. This acquisition led to a large increase in sales in the poultry sector in particular. In addition, volume grew like-for-like in all sectors in Germany. In the pig sector a number of new tenders were won.
The growth in compound feed volume was greater (in percentage terms) than in Total Feed volume.
Tasomix realised like-for-like volume growth of over 20% compared to the first half of 2018 when ForFarmers did not yet hold a 60% stake in the business. Volume development in Poland was slightly under pressure in the first quarter as poultry farmers waited to refill their stables until the prices for broilers recovered. These prices increased in the second quarter of 2019, with a positive effect for Tasomix. Volumes increased due to the production of both poultry and pig feed in the new mill in Pionki, which reached an utilisation level of about 30% (of the maximum capacity of 350,000 tonnes) at end-June.
Gross profit increased by €9.0 million to €36.1 million (33.3%). Like-for-like gross profit (i.e. in Germany) declined as volumes were redistributed over the various sectors, there was more price pressure in the pig sector partly due to the tenders, and a larger share of the volume was produced through toll-milling.
Underlying operating expenses increased by 52.4%, particularly due to the additional expenses associated with the acquisition of Tasomix and the related professionalization and integration costs, which could not yet be compensated by volume growth and synergy effects. Like-for-like (therefore in Germany), operating expenses mainly increased due to volume growth and more outsourcing of transport activities. Higher diesel prices and more costs relating to toll milling also pushed up costs. There was a small release from the allowance for bad debts in 2019, compared to a small addition in the first half of 2018. Overhead cost allocation was €1.0 million higher than last year.
Underlying EBITDA rose by 5.5%, the result of volume growth and higher gross profit combined with the increase in underlying operating expenses. The underlying EBITDA/gross profit ratio consequently decreased to 16.3% (first half-year 2018: 20.6%). ROACE (based on underlying EBITDA) decreased to 8.0% (first half-year 2018: 22.7%) due to the lower ROACE in Poland (mainly because of the increase of capital employed following the take-over and the start-up of the new mill in Pionki).
| For the six months ended 30 June | |||||
|---|---|---|---|---|---|
| In thousands of euro | 2019 | 2018 | ∆% | ||
| Total Feed volume (in tons) | 1,390,213 | 1,448,152 | -4.0% | ||
| Revenue | 338,734 | 321,634 | 5.3% | ||
| Gross profit | 60,885 | 63,688 | -4.4% | ||
| Other operating income | 24 | 387 | -93.8% | ||
| Operating expenses incl depreciation & amortisation | -62,550 | -58,530 | 6.9% | ||
| Underlying expenses incl depreciation & amortisation | -59,452 | -58,530 | 1.6% | ||
| EBITDA | 7,600 | 11,472 | -33.8% | ||
| Underlying EBITDA | 8,848 | 11,059 | -20.0% | ||
| Underlying depreciation and amortisation | -7,413 | -5,927 | 25.1% | ||
| EBIT | -1,641 | 5,545 | -129.6% | ||
| Underlying EBIT | 1,435 | 5,132 | -72.0% | ||
| Underlying EBITDA / Gross profit | 14.5% | 17.4% | |||
| ROACE on underlying EBITDA | 10.8% | 11.1% |
The dairy herd remained stable amid a further decline in the number of dairy farmers. Although the milk price was slightly higher than in the first half of 2018, demand for performance feed in the ruminant sector declined as more forage was available than last year because of the mild winter. Consolidation and rationalisation in the pig sector slowed compared to last year. Whilst consumer demand for pig meat remained stable, demand for chicken meat and eggs continued to grow. Much attention continued to be paid to reducing antibiotics in foodstuffs (and consequently in feed). ForFarmers was 'highly commended' at the 2019 Antibiotic Guardian awards in recognition of its continued commitment to the role nutrition can play in tackling the global challenge of antimicrobial resistance.
The possible effects of the outcome of Brexit remain uncertain. The sector is making joint efforts to ensure a smooth supply of raw materials from abroad.
Total Feed volume decreased by 4.0% to 1.4 million tonnes. Within the ruminants sector less feed was sold because of the mild winter. Volume in the pig sector
decreased as a result of the commercial proposition aimed at improving margins. More feed was sold in the poultry sector, where ForFarmers is gaining market share.
The decline in compound feed volume was slightly larger (in percentage terms) than for Total Feed volume.
Gross profit decreased by 4.4%. The unfavourable purchasing position for raw materials was not passed on to customers for competitive reasons. The resulting effect could only be partly compensated by the margin improvement arising from the tighter commercial proposition in the pig sector initiated during 2018.
Underlying operating expenses rose by 1.6%. Higher energy prices meant that production and transport costs increased despite the decline in volume. Employee benefit expenses were lower due to the focus on efficiency. As was the case last year, a small addition was made to the allowance for bad debts in the first half-year 2019. Overhead cost allocation was €0.5 million higher than last year.
Underlying EBITDA fell by 20.0%, the result of volume decline, lower gross profit and higher underlying
operating expenses. The underlying EBITDA/gross profit ratio consequently decreased to 14.5% (first half-year 2018: 17.4%).
ROACE (based on underlying EBITDA) decreased slightly from 11.1% in the first half-year 2018 to 10.8% in 2019.
| For the six months ended 30 June | |||||
|---|---|---|---|---|---|
| In thousands of euro | 2019 | 2018 | ∆% | ||
| Gross profit | 301 | -38 | -892.1% | ||
| Other operating income | 871 | 2 | |||
| Operating expenses incl depreciation & amortisation | -8,546 | -7,935 | 7.7% | ||
| Underlying expenses incl depreciation & amortisation | -8,395 | -7,935 | 5.8% | ||
| EBITDA | -5,773 | -6,451 | -10.5% | ||
| Underlying EBITDA | -6,498 | -6,451 | 0.7% | ||
| Underlying depreciation and amortisation | -1,601 | -1,520 | 5.3% | ||
| EBIT | -7,374 | -7,971 | -7.5% | ||
| Underlying EBIT | -8,099 | -7,971 | 1.6% |
Underlying operating expenses of the Central and support services are exclusive of the amount in overhead costs that is passed on to the clusters. In the first half of 2019 underlying central operating expenses increased by €0.5 million, and the amount passed on to the clusters fell by €0.7 million. In the first half of 2018 (M&A) consultancy expenses were €0.7 million higher than in the same period this year.
In consultation with its stakeholders, ForFarmers has formulated five sustainability objectives in relation to three themes: Environment, People & Society, Animal health & Animal welfare.
These objectives are: 1) to reduce phosphate emissions, 2) to reduce greenhouse gas emissions, 3) to minimise the use of land, water and energy, 4) to ensure safe and fair working conditions and 5) to improve feed safety. Improving animal health and welfare is considered to be an integral part of the Total Feed solutions.
In the Netherlands and Germany dairy and other farmers are under great pressure to reduce phosphate emissions. ForFarmers constantly aims to improve on-farm phosphate efficiency by supplying specially formulated feed that results in lower phosphate emissions. The phosphate level of compound feed for dairy cows has decreased by approximately 10% in the past years, with ForFarmers having contributed to this decline with innovative feed solutions. In addition, ForFarmers helps farmers by using calculation modules to determine the impact of business decisions on feed margins, phosphate efficiency and the carbon footprint.
The construction of the biomass plant in Lochem, of which the official opening took place recently, is consistent with the second and the third sustainability target. The installation produces steam from wood chips from local sources and uses it as a sustainable way of meeting most of the mill's energy requirement.
The focus on safe and good working conditions (the fourth objective) with the aim of reducing the number of lost time incidents (LTIs) remains undiminished. In the first half of 2019 there were 44% fewer LTIs than in the same period last year. Reducing the number of LTIs will continue to require that all employees adopt a safety-focused mentality and safety-first working practices.
The ForFarmers Nutrition Innovation Centre focuses on developing and improving feed concepts that improve the health of animals and consequently their performance. A new feed concept ('Ultra') for pigs was launched in the first half of 2019, aimed at lower phosphate emissions by, better health for and better performance by finishers. In addition, the feed concept (Apollo) for broilers was
launched in Belgium, following its launch in the other countries last year. Furthermore, ForFarmers recently created a special 'VIDA' team to assist pig farmers in optimising the health of their piglets.
No major events after the reporting date have occurred.
Geopolitical developments can affect the markets that ForFarmers operates in. The uncertainty surrounding Brexit as well as the trade relations between the United States and other countries (in particular China) continues. Volatility in raw material prices and on the currency markets is expected to continue.
The environmental impact of the agricultural sector is increasingly becoming an item on the political agenda. Public debate on this topic is increasing significantly, especially in the Netherlands and Germany. The discussion on for instance the size of the livestock herd could impact the growth potential of the dairy and pig sector in both countries. At the same time, European dairy farmers are expected to focus on increasing their production in light of a slightly growing global demand for dairy products. The self-sufficiency rate in the United Kingdom is well below 100% for the pig and poultry sector, offering growth potential to local livestock farmers. Controlling the consequences of animal diseases remains a challenge for the agricultural sector. The increasing demand from Asia/China for pig meat following the outbreak of African swine fever, and the resulting increase in the pig price, presents good export prospects. In various European countries, however, an increasing number of different measures are being introduced locally aimed at tightly regulating expansion of the pig sector. Consumers are increasingly choosing chicken meat and eggs instead of for example pig meat. EU reports indicate that consumption of poultry products will continue to grow in the coming years.
On publishing its 2018 annual result ForFarmers said it would invest approximately €50 million in 2019 (2018: €45 million). Last year ForFarmers announced that in order to continue to support the strong growth for the mid-term in
Germany, it intended to construct a new feed mill in Wesel, Germany. This possibility was factored into the capex plans for 2019.
ForFarmers prefers to focus on production flexibility and production specialisation (i.e. dedicated manufacturing) and therefore seeks to build up a network of strategic partners (feed companies) to enable it to partially outsource its production. In light of this, ForFarmers has decided not to build the mill in Wesel. Partly because of this decision the expected capex for 2019 is reduced from €50 million to €40 million.
The focus on further optimising working capital will be sustained. ForFarmers will also continue to pursue acquisitions in the existing five countries as well as in new countries in Europe and adjoining regions (Europe +).
In the publication of the annual results 2018 ForFarmers stated the expected effects of the application of IFRS 16 for the full year 2019. Based on the contracts as at 1 January 2019 these would result in an increase in EBITDA of approximately €5 million, an almost stable EBIT and a decline in profit before tax of approximately €0.5 million. Total assets would increase by approximately €25 million as of the same date.
In the first half of 2019 the application of IFRS 16 resulted in an increase in EBITDA of €2.8 million, an increase in EBIT of €0.3 million and a decrease in profit before tax of €0.2 million.
ForFarmers determined its strategy Horizon 2020 in 2014. In 2016, as part of the listing, the Company disclosed to Investors the medium-term financial guidance appertaining to this strategy .
The medium term target is to realise an average annual increase in underlying EBITDA in the mid-single digits at constant currencies, excluding the impact of significant acquisitions and barring unforeseen circumstances.
Underlying EBITDA, underlying EBIT and underlying profit in 2019 (full year) is expected to be lower than in 2018.
ForFarmers is currently working on the strategy for the years 2020 -2025. This strategy, and the associated objectives, will be finalised and disclosed in the first-half of 2020.
Pursuant to section 5:25d, paragraph 2(c), of the Dutch Financial Supervision Act (Wet op het financieel toezicht (Wft)), the Board of Directors state that to the best of their knowledge the 2019 interim financial statements, which comprise the Company and its subsidiaries (jointly 'the Group' or 'ForFarmers') and the Group's interest in its joint venture, give a true and fair view of the condensed consolidated statement of financial position, the condensed consolidated statement of profit or loss, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of changes in equity, the condensed consolidated statement of cash flows and the notes to the condensed consolidated financial statements.
This press release contains inside information within the meaning of Article 7 (1) of the EU Market Abuse Regulation.
Lochem, 15 August 2019
Executive Board ForFarmers N.V. Yoram Knoop, CEO Arnout Traas, CFO Adrie van der Ven, COO
Yoram Knoop (CEO), Arnout Traas (CFO) and Adrie van der Ven (COO) will expand on the ForFarmers 2019 half-year results in a conference call today from 08.30 – 09.30 CET. The conference call (in Dutch) can be followed via live audio webcast by logging onto the corporate website www.forfarmersgroup.eu. The slides used during the conference call are taken from the 2019 first-half results presentation, which can be downloaded via the corporate website. The audio webcast will remain available on the website afterwards.
Yoram Knoop (CEO), Arnout Traas (CFO) and Adrie van der Ven (COO) will expand on the ForFarmers 2019 half-year results in a conference call today from 10.00 – 11.00 CET. The conference call (in English) can be followed via live audio webcast by logging onto the corporate website www.forfarmersgroup.eu. The slides used during the conference call are taken from the 2019 first-half results presentation, which can be downloaded via the corporate website. The audio webcast will remain available on the website afterwards.
Caroline Vogelzang Director Investor Relations T: 0031 573 288 194 M: 0031 6 10 94 91 61 E: [email protected]
ForFarmers N.V., based in Lochem, the Netherlands, is an internationally operating livestock nutrition company that provides comprehensive and innovative feed solutions for conventional and organic livestock farming. The company's 'For the Future of Farming' mission is aimed at safeguarding the continuity of farming and promoting the financial health of a sector which will continue to play a sustainable role in society for many generations to come. ForFarmers works closely with its customers to deliver concrete results: better returns, a healthier herd and greater efficiency. It does so by providing bespoke and Total Feed solutions through a targeted approach supported by specialist and expert professionals.
With production sites in the Netherlands, Germany, Belgium, Poland and the United Kingdom and an annual sales volume of around 10 million tonnes of animal feed ForFarmers is market leader in Europe. In 2018 ForFarmers employed 2,761 people and generated revenue of € 2.4 billion.
ForFarmers N.V. is listed on Euronext Amsterdam.
ForFarmers will be publishing its Third Quarter 2019 Trading Update on 31 October 2019.
ForFarmers N.V., Postbus 91, 7240 AB Lochem, T: +31 (0)573 28 88 00 , F: +31 (0)573 28 88 99 [email protected]/en/, www.forfarmersgroup.eu/en/
Enclosures: Interim financial statements 2019
REPORTING STANDARDS
The 2019 half-year report (incl. interim financial statements) will be available from 15 August 2019 on the ForFarmers website (www.forfarmersgroup.eu).
The results in this press release are derived from the ForFarmers 2019 interim financial statements, which have not been audited by the external auditor, and have been drawn up in accordance with the International Financial Reporting Standards as adopted by the EU (IFRS).
General remark: presented percentages are calculated on the rounded amounts in million euro with one decimal.
In view of the fact that shares can be freely traded on EURONEXT Amsterdam, ForFarmers operates under the supervision of the Financial Markets Authority (AFM) and the company acts in accordance with the prevailing regulations for share-issuing companies.
31-10-2019 Publication third quarter 2019 Trading update 12-03-2020 Publication Annual results 2019 24-04-2020 Annual General Meeting of shareholders 01-05-2020 Publication first quarter 2020 Trading update 13-08-2020 Publication first half-year 2020 results 30-10-2020 Publication third quarter 2020 Trading update
This press release contains forward-looking statements, including those relating to ForFarmers legal obligations in terms of capital and liquidity positions in certain specified scenarios. In addition, forward-looking statements, without limitation, may include such phrases as "intends to", "expects", "takes into account", "is aimed at", ''plans to", "estimated" and words with a similar meaning. These statements pertain to or may affect matters in the future, such as ForFarmers future financial results, business plans and current strategies. Forward-looking statements are subject to a number of risks and uncertainties, which may mean that there could be material differences between actual results and performance and expected future results or performances that are implicitly or
explicitly included in the forward-looking statements. Factors that may result in variations on the current expectations or may contribute to the same include but are not limited to: developments in legislation, technology, jurisprudence and regulations, share price fluctuations, legal procedures, investigations by regulatory bodies, the competitive landscape and general economic conditions. These and other factors, risks and uncertainties that may affect any forward-looking statements or the actual results of ForFarmers, are discussed in the last published annual report. The forward-looking statements in this press release are only statements as of the date of this document and ForFarmers accepts no obligation or responsibility with respect to any changes made to the forward-looking statements contained in this document, regardless of whether these pertain to new information, future events or otherwise, unless ForFarmers is legally obliged to do so.
| In thousands of euro (before profit appropriation) Assets |
Note | 30 June 2019 | 31 December 2018 |
|---|---|---|---|
| Property, plant and equipment | 14 | 259,402 | 261,555 |
| Right of use asset | 15 | 24,204 | - |
| Intangible assets and goodwill | 16 | 166,862 | 168,023 |
| Investment property | 643 | 643 | |
| Trade and other receivables | 23 | 14,811 | 13,690 |
| Equity-accounted investees | 17 | 25,872 | 25,392 |
| Deferred tax assets | 2,342 | 2,099 | |
| Non-current assets | 494,136 | 471,402 | |
| Inventories | 18 | 85,335 | 93,555 |
| Biological assets | 5,722 | 4,314 | |
| Trade and other receivables | 23 | 251,609 | 250,618 |
| Current tax assets | 13 | 8,963 | 2,072 |
| Cash and cash equivalents | 23 | 54,020 | 51,756 |
| Current assets | 405,649 | 402,315 | |
| Total assets | 899,785 | 873,717 | |
| Equity | |||
| Share capital | 19 | 1,063 | 1,063 |
| Share premium | 143,554 | 143,554 | |
| Treasury share reserve | -64 | -61 | |
| Translation reserve | -6,199 | -6,653 | |
| Hedging reserve | -560 | -896 | |
| Other reserves and retained earnings | 262,470 | 239,990 | |
| Unappropriated result | 8,974 | 58,590 | |
| Equity attributable to shareholders of the Company | 409,238 | 435,587 | |
| Non-controlling interests | 4,994 | 5,166 | |
| Total equity | 414,232 | 440,753 | |
| Liabilities | |||
| Loans and borrowings | 23 | 48,621 | 52,354 |
| Lease liabilities | 23 | 19,068 | 186 |
| Employee benefits | 21 | 33,989 | 33,496 |
| Provisions | 22 | 2,066 | 2,024 |
| Trade and other payables | 23 | 38,979 | 41,258 |
| Deferred tax liabilities | 11,639 | 13,174 | |
| Non-current liabilities | 154,362 | 142,492 | |
| Bank overdrafts | 23 | 64,285 | 13,307 |
| Loans and borrowings | 23 | 1,912 | 2,563 |
| Lease liabilities | 23 | 4,746 | 400 |
| Provisions | 22 | 2,469 | 1,372 |
| Trade and other payables | 23 | 256,621 | 267,695 |
| Current tax liability | 13 | 1,158 | 5,135 |
| Current liabilities | 331,191 | 290,472 | |
| Total liabilities | 485,553 | 432,964 | |
| Total equity and liabilities | 899,785 | 873,717 |
| For the six months ended 30 June |
|||
|---|---|---|---|
| In thousands of euro | Note | 2019 | 2018 |
| Revenue | 1,274,353 | 1,141,562 | |
| Cost of raw materials and consumables | -1,060,241 | -923,857 | |
| Gross profit | 8 | 214,112 | 217,705 |
| Other operating income | 9 | 1,167 | 5,090 |
| Operating income | 215,279 | 222,795 | |
| Employee benefit expenses | -85,897 | -76,589 | |
| Depreciation, amortisation and impairment | 14 , 15 , 16 | -24,523 | -12,068 |
| Net (reversal of) impairment loss on trade receivables | 47 | 597 | |
| Other operating expenses | -95,930 | -89,581 | |
| Operating expenses | 10 | -206,303 | -177,641 |
| Operating profit | 8,976 | 45,154 | |
| Finance income | 11 | 5,400 | 500 |
| Finance costs | 11 | -4,100 | -1,728 |
| Net finance result | 1,300 | -1,228 | |
| Share of profit of equity-accounted investees, net of tax | 17 | 1,681 | 1,062 |
| Profit before tax | 11,957 | 44,988 | |
| Income tax expense | 13 | -2,754 | -9,845 |
| Profit for the year | 9,203 | 35,143 | |
| Profit attributable to: | |||
| Shareholders of the Company | 8,974 | 34,796 | |
| Non-controlling interests | 229 | 347 | |
| Profit for the year | 9,203 | 35,143 | |
| Earnings per share in euro(1) | |||
| Basic earnings per share | 0.09 | 0.35 | |
| Diluted earnings per share | 0.09 | 0.35 | |
(1) Earnings per share attributable to ordinary equity holders of the parent
| For the six months ended 30 June |
|||
|---|---|---|---|
| In thousands of euro | Note | 2019 | 2018 |
| Profit for the year | 9,203 | 35,143 | |
| Other comprehensive income | |||
| Items that will never be reclassified to profit or loss | |||
| Remeasurement of defined benefit liabilities | 21 | -4,644 | 8,511 |
| Equity-accounted investees - share of other comprehensive income | - | - | |
| Related tax | 939 | -1,449 | |
| -3,705 | 7,062 | ||
| Items that are or may be reclassified to profit or loss | |||
| Foreign operations - foreign currency translation differences | 608 | -1,024 | |
| Cash flow hedges - effective portion of changes in fair value | 421 | -754 | |
| Cash flow hedges - reclassified to statement of profit or loss / statement of financial position | - | - | |
| Related tax | -239 | 435 | |
| 790 | -1,343 | ||
| Other comprehensive income, net of tax | -2,915 | 5,719 | |
| Total comprehensive income | 6,288 | 40,862 | |
| Total comprehensive income attributable to: | |||
| Shareholders of the Company | 6,059 | 40,515 | |
| Non-controlling interests | 229 | 347 | |
| Total comprehensive income | 6,288 | 40,862 |
| In thousands of euro | Share Note Capital |
Share premium |
Treasury share reserve |
Translation reserve |
Hedging reserve |
Other reserves and retained earnings |
Unap propriated result |
Total | Non controlling |
interest Total equity |
|---|---|---|---|---|---|---|---|---|---|---|
| Balance as at 1 January 2019 |
1,063 | 143,554 | -61 | -6,653 | -896 | 239,990 | 58,590 | 435,587 | 5,166 | 440,753 |
| Addition from unappropriated result |
- | - | - | - | - | 58,590 | -58,590 | - | - | - |
| Total comprehensive income | ||||||||||
| Profit | - | - | - | - | - | - | 8,974 | 8,974 | 229 | 9,203 |
| Other comprehensive income |
- | - | - | 454 | 336 | -3,705 | - | -2,915 | - | -2,915 |
| Total comprehensive income |
- | - | - | 454 | 336 | -3,705 | 8,974 | 6,059 | 229 | 6,288 |
| Transactions with shareholders of the Company, recognised directly in equity Contributions and distributions |
||||||||||
| Dividends | 19 - |
- | - | - | - | -30,051 | - | -30,051 | -401 | -30,452 |
| Purchase of own shares |
- | - | -3 | - | - | -2,343 | - | -2,346 | - | -2,346 |
Attributable to shareholders of the Company
| shares | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Equity-settled share based payments |
- | - | - | - | - | -11 - |
-11 | - | -11 |
| Total transactions with shareholders of the Company |
- | - | -3 | - | - | -32,405 - |
-32,408 | -401 | -32,809 |
| Balance as at 30 June 2019 |
1,063 143,554 | -64 | -6,199 | -560 262,470 | 8,974 | 409,238 | 4,994 | 414,232 |
Attributable to shareholders of the Company
| Other | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Treasury | reserves and |
Unap | Non | |||||||
| Share | Share | share | Translation | Hedging | retained | propriated | controlling | |||
| In thousands of euro | Note Capital |
premium | reserve | reserve | reserve | earnings | result | Total | interest Total equity | |
| Balance as at 31 December 2017 |
1,063 | 143,554 | -55 | -5,692 | - | 207,878 | 58,554 | 405,302 | 4,629 | 409,931 |
| IFRS 9 adjustment | - | - | - | - | - | -97 | - | -97 | - | -97 |
| Balance as at 1 January 2018 |
1,063 | 143,554 | -55 | -5,692 | - | 207,781 | 58,554 | 405,205 | 4,629 | 409,834 |
| Addition from unappropriated result |
- | - | - | - | - | 58,554 | -58,554 | - | - | - |
| Total comprehensive income | ||||||||||
| Profit | - | - | - | - | - | - | 34,796 | 34,796 | 347 | 35,143 |
| Other comprehensive income |
- | - | - | -777 | -566 | 7,062 | - | 5,719 | - | 5,719 |
| Total comprehensive | ||||||||||
| income | - | - | - | -777 | -566 | 7,062 | 34,796 | 40,515 | 347 | 40,862 |
| Transactions with shareholders of the Company, recognised directly in equity Contributions and distributions |
||||||||||
| Dividends | - | - | - | - | - | -30,053 | - | -30,053 | - | -30,053 |
| Purchase of own shares |
- | - | -6 | - | - | -5,873 | - | -5,879 | - | -5,879 |
| Equity-settled share based payments |
- | - | - | - | - | -306 | - | -306 | - | -306 |
| Total transactions with shareholders of the Company |
- | - | -6 | - | - | -36,232 | - | -36,238 | - | -36,238 |
| Balance as at 30 |
June 2018 1,063 143,554 -61 -6,469 -566 237,165 34,796 409,482 4,976 414,458
| For the six months ended 30 June |
||
|---|---|---|
| In thousands of euro Note |
2019 | 2018 |
| Cash flows from operating activities | ||
| Profit for the year | 9,203 | 35,143 |
| Adjustments for: | ||
| Depreciation 14 , 15 |
15,526 | 9,698 |
| Amortisation 16 |
4,280 | 2,854 |
| Net (reversal of) impairment loss on property, plant and equipment 14 |
4,717 | -484 |
| Change in fair value of biological assets (unrealised) | 2 | - |
| Net (reversal of) impairment loss on trade receivables | -47 | -597 |
| Net finance result | -1,300 | 1,228 |
| Share of profit of equity-accounted investees, net of tax | -1,681 | -1,062 |
| Gain on sale of property, plant and equipment / investment property 9 |
-1,017 | -327 |
| Gain on sale of participating interests 9 |
- | -413 |
| Gain on sale of assets held for sale 9 |
- | -4,509 |
| Equity-settled share-based payment expenses | 294 | 80 |
| Expenses related to post-employment defined benefit plans | 483 | 546 |
| Expenses related to long term incentive plans | 656 | 73 |
| Income taxes expense | 2,754 | 9,845 |
| 33,870 | 52,075 | |
| Changes in: | ||
| Inventories & biological assets | 6,875 | -357 |
| Trade and other receivables | -2,716 | -5,677 |
| Trade and other payables | -12,661 | 14,056 |
| Provisions and employee benefits | -4,350 | -3,912 |
| Cash generated from operating activities | 21,018 | 56,185 |
| Interest paid | -1,034 | -704 |
| Income taxes paid | -15,171 | -15,412 |
| Net cash from operating activities | 4,813 | 40,069 |
| Cash flows from investing activities | ||
| Interest received | 550 | 460 |
| Dividends received from equity-accounted investees | 1,593 | 2,123 |
| Proceeds from sale of property, plant and equipment / investment property | 1,471 | 1,311 |
| Proceeds from sale of participating interests, net of cash disposed 9 |
- | 413 |
| Proceeds from sale of assets held for sale 9 |
- | 5,650 |
| Acquisition of subsidiary, net of cash acquired 6 |
-877 | - |
| Acquisition of property, plant and equipment 14 |
-16,158 | -15,881 |
| Acquisition of intangible assets 16 |
-665 | -382 |
| Net cash used in investing activities | -14,086 | -6,306 |
| Cash flows from financing activities | ||
| Purchase of own shares | -2,346 | -5,879 |
| Proceeds from sale of treasury shares relating to employee participation plan | 1,339 | 1,503 |
| Repurchase of treasury shares relating to employee participation plan | -1,805 | -2,192 |
| Lease payments | -2,937 | -17 |
| Proceeds from borrowings 23 |
35,522 | - |
| Repayment of borrowings 23 |
-40,387 | -5,683 |
| Payments of settlement of derivatives | -141 | - |
| Dividend paid 19 |
-29,408 | -29,077 |
| Net cash used in financing activities | -40,163 | -41,345 |
| Net increase/decrease in cash and cash equivalents | -49,436 | -7,582 |
| Cash and cash equivalents at 1 January(1) | 38,449 | 111,607 |
| Effect of movements in exchange rates on cash held | 722 | -1,871 |
| Cash and cash equivalents as at 30 June(1) | -10,265 | 102,154 |
(1) Net of bank overdrafts
ForFarmers N.V. (the 'Company') is a public limited company domiciled in the Netherlands. The Company's registered office is at Kwinkweerd 12, 7241 CW Lochem. The condensed consolidated interim financial statements ('interim financial statements') for the six months ended 30 June 2019 comprise ForFarmers N.V. and its subsidiaries (jointly the 'Group' or 'ForFarmers') and the Group's interest in its joint venture.
ForFarmers N.V. is an international organisation that offers nutritional solutions for both conventional and organic livestock farms. ForFarmers gives its very best 'For the Future of Farming': for the continuity of farming and for a financially secure sector.
The interim financial statements were authorised for issuance by the Executive Board and Supervisory Board on 14 August 2019.
The interim financial statements in this report have not been audited.
These interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting, and should be read in conjunction with the Group's last annual consolidated financial statements as at and for the year ended 31 December 2018 ('last annual financial statements'), which were prepared in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRSs, hereafter stated as IFRS) and section 2:362 sub 9 of the Netherlands Civil Code.
The interim financial statements do not include all of the information required for a complete set of IFRS financial statements. However, selected explanatory notes are included to explain events and transactions that are significant to understand the changes in the Group's financial position and performance since the last annual financial statements. The accounting policies applied in
these interim financial statements are the same as those applied in the last annual financial statements, except for the adoption of IFRS 16 (leases) as of 1 January 2019.
IFRS 16 introduced a single, on-balance sheet accounting model for lessees. As a result, the Group, as a lessee, has recognised right-of-use assets representing its rights to use the underlying assets, and lease liabilities representing its obligation to make lease payments.
The Group has applied IFRS 16 using the modified retrospective approach and based on the selected transition method no adjustment to equity has been recorded. Accordingly, the comparative information presented for 2018 has not been restated – i.e. it is presented, as previously reported, under IAS 17 and related interpretations. The details of the changes in accounting policies are disclosed below.
Previously, the Group determined at contract inception whether an arrangement was or contained a lease under IFRIC 4 Determining Whether an Arrangement contains a Lease. The Group now assesses whether a contract is or contains a lease based on the new definition of a lease. Under IFRS 16, a contract is, or contains, a lease if the contract conveys a right to control the use of an identified asset for a period of time in exchange for consideration.
On transition to IFRS 16, the Group elected to apply the practical expedient to grandfather the assessment of which transactions are leases. It applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed. Therefore, the definition of a lease under IFRS 16 has been applied only to contracts entered into or changed on or after 1 January 2019.
At inception or on reassessment of a contract that contains a lease component, the Group has elected not to separate non-lease components and will instead account for the lease and non-lease components as a single lease component.
The Group leases amongst others land, buildings, factory facilities, company cars and trucks.
As a lessee, the Group previously classified leases mainly as operating leases based on its assessment of whether the lease transferred substantially all of the risks and rewards of ownership. Under IFRS 16, the Group recognises right-of-use assets and lease liabilities for most leases – i.e. these leases are on-balance sheet.
However, the Group has elected not to recognise right-ofuse assets and lease liabilities for short-term leases (less than 12 months and without a purchase option) and leases for which the underlying asset is of low-value (a value below €5 thousand). The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
The Group presents right-of-use assets and lease liabilities as separate lines in the statement of financial position.
The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-ofuse asset is initially measured at cost, and subsequently at cost less any accumulated depreciation and impairment losses, and adjusted for certain remeasurements of the lease liability (see below for the remeasurements of the lease liability).
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Generally, the Group uses its incremental borrowing rate for the specific asset category and specific lease term as the discount rate.
The lease liability is subsequently increased by the interest cost on the lease liability and decreased by lease payments made. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, a change in the estimate of the amount expected to be payable under a residual value guarantee, or as appropriate, changes in the assessment of whether a purchase or extension option is reasonably certain to be exercised or a termination option is reasonably certain not to be exercised.
The Group has applied judgement to determine the lease term for some lease contracts that include renewal and cancellation options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and right-of-use assets recognised.
At transition, for leases classified as operating leases under IAS 17, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Group's incremental borrowing rate as at 1 January 2019. Right-of-use assets are measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments.
The Group used the following practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17:
The Group leases a number of trucks, trailers (both in the United Kingdom) and company cars (Poland), which were classified as finance leases under IAS 17. For these finance leases, the carrying amount of the right-of-use asset and the lease liability at 1 January 2019 were determined at the carrying amount of the lease asset and lease liability under IAS 17 immediately before that date.
On transition to IFRS 16, the Group recognised additional right-of-use assets and additional lease liabilities of €25.0 million.
When measuring lease liabilities for leases that were classified as operating leases, the Group discounted lease payments using its incremental borrowing rate at 1 January 2019. The weighted-average rate applied is 3.1%. For some specific long term land and factory facilities a rate between 3.5% and 6.1% has been applied depending on the lease term. A reconciliation between the commitments from operating lease at 31 December 2018 and the lease liability at 1 January 2019 is included below:
| Operating lease commitments at 31 December 2018 |
33,106 |
|---|---|
| Recognition exemptions (low value and short term) | 884 |
| Operating lease commitments 31 December 2018 excluding exemptions |
32,222 |
| Discounted using the incremental borrowing rate | 22,172 |
| Discounted extension options reasonable certain to be excercised |
2,815 |
| Additional IFRS 16 lease liabilities | 24,987 |
| Financial lease liabilities recognised at 31 December 2018 |
586 |
| Lease liabilities 1 January 2019 | 25,573 |
As a result of initially applying IFRS 16, in relation to the leases that were previously classified as operating leases, the Group recognised €23.3 million of right-of-use assets and €23.4 million of lease liabilities as at 30 June 2019. Also in relation to those leases under IFRS 16, the Group has recognised depreciation and interest costs, instead of operating lease expense. During the six months ended 30 June 2019, the Group recognised €2.5 million of depreciation charges and €0.5 million of interest costs from these leases instead of €2.8 million operating lease expense. The significant judgements made by management in
A number of changes to existing standards (amendments to IFRS 9 financial instruments, IAS 28 equity accounted investees, and IAS 19 employee benefits) are effective from 1 January 2019 but they do not have a material effect on the Group's financial statements. For explanatory notes on the standards issued but not yet effective reference is made to Note 27.
The interim financial statements were prepared in accordance with the going concern principle.
When necessary prior year amounts have been adjusted to conform to the current year presentation.
These interim financial statements are presented in euro, which is the Company's functional currency. All amounts have been rounded to the nearest thousand, unless otherwise indicated. The subsidiaries' functional currencies are the euro, Pound sterling, and Polish zloty. Most of the subsidiaries' transactions, and resulting balance occur in their local and functional currency.
The following exchange rates have been applied:
| Rate: | €1,00 | €1,00 |
|---|---|---|
| Rate as at 31 December 2017 | £0.8872 | - |
| Rate as at 30 June 2018 | £0.8861 | - |
| Rate as at 31 December 2018 | £0.8945 | PLN4.3014 |
| Rate as at 30 June 2019 | £0.8966 | PLN4.2496 |
| Average rate | €1,00 | €1,00 |
| H1 2018 | £0.8798 | - |
| H1 2019 | £0.8736 | PLN4.292 |
In preparing these interim financial statements, management has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.
applying the Group's accounting policies and the key sources of uncertainties with respect to estimates were the same as those applied to the last annual financial statements, except for the new judgements and estimates related to IFRS 16 lease accounting as described in Note 2.
A number of the Group's accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.
'Fair value' is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of a liability reflects its nonperformance risk.
When one is available, the Group measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction.
If an asset or a liability measured at fair value has a bid price and an ask price, then the Group measures assets and long positions at a bid price and liabilities and short positions at an ask price.
The best evidence of the fair value of a financial instrument on initial recognition is normally the transaction price – i.e. the fair value of the consideration paid or received. If the Group determines that the fair value on initial recognition differs from the transaction price and the fair value is evidenced neither by a quoted price in an active market for an identical asset or liability nor based on a valuation technique for which any unobservable inputs are judged to be insignificant in relation to the measurement, then the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair value on initial recognition and the transaction price. Subsequently, that difference is recognised in profit or loss on an appropriate basis over the life of the instrument but no later than when the valuation is wholly supported by observable
market data or the transaction is closed out.
The Group has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values, and reports directly to the CFO.
The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that these valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which the valuations should be classified.
Significant valuation issues are reported to the Group's Audit Committee.
When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows.
The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.
A. Basis for segmentation The Group has the following three strategic clusters, which are its reportable segments:
Each country is a separate operating segment, but can be aggregated into reportable segments depending on similarity of economic, market and competition characteristics, given that the nature of the products and services, the nature of the production processes, the type of customer, the methods used to distribute the products, and the nature of the regulatory environment, is similar. Compared to 2018 Belgium has been shifted from the segment Germany / Poland to the segment the Netherlands. As a result of the acquisition of Voeders Algoet at the end of 2018 ForFarmers obtained a top three position in Belgium. As such the economic and competitor characteristics of the operating activities in Belgium have more similarities with the operating activities in the Netherlands, as with those from Germany and Poland. Where ForFarmers has not yet a top 3 position. The comparative information has been adjusted to this new presentation.
The Group's products include, amongst other things, compound feed and blends, feed for young animals and specialities, raw materials and coproducts, seeds and fertilisers. Core activities are production and delivery of feed, logistics and providing Total Feed solutions based on nutritional expertise.
The Group's Executive Committee reviews internal management reports of each reportable segment on a monthly basis, and its members are considered as the chief operating decision making body.
B. Information of reportable segments Information related to each reportable segment is set out on the next page.
The column Group / eliminations represents and includes amounts as a result of Group activities and eliminations in the context of the consolidation. There are various levels of integration between the segments. This integration includes, amongst others, transfers of inventories and shared distribution services, respectively. Inter-segment pricing is determined on an arm's length basis.
The Group is not reliant on any individual major customers.
The reconciliation between the segments' operating results and the Group's profit before tax is as follows:
| For the six months ended 30 June |
|||
|---|---|---|---|
| In thousands of euro | Note | 2019 | 2018 |
| Segment operating profit |
8,976 | 45,154 | |
| Finance income | 5,400 | 500 | |
| Finance costs | -4,100 | -1,728 | |
| Share of profit of equity-accounted investees, net of tax |
1,681 | 1,062 | |
| Profit before tax | 11,957 | 44,988 |
For the six months ended 30 June 2019
| The | |||||
|---|---|---|---|---|---|
| In thousands of euro | Netherlands / Belgium |
Germany / Poland |
United Kingdom |
Group / | eliminations Consolidated |
| External revenues | 637,242 | 298,377 | 338,734 | - | 1,274,353 |
| Inter-segment revenues | 20,095 | 393 | - | -20,488 | - |
| Revenue | 657,337 | 298,770 | 338,734 | -20,488 | 1,274,353 |
| Gross profit | 116,799 | 36,127 | 60,885 | 301 | 214,112 |
| Other operating income | 125 | 147 | 24 | 871 | 1,167 |
| Operating expenses | -99,478 | -35,729 | -62,550 | -8,546 | -206,303 |
| Operating profit | 17,446 | 545 | -1,641 | -7,374 | 8,976 |
| Depreciation, amortisation and impairment | 8,892 | 4,789 | 9,241 | 1,601 | 24,523 |
| EBITDA | 26,338 | 5,334 | 7,600 | -5,773 | 33,499 |
| Property, plant and equipment | 108,964 | 57,067 | 88,804 | 4,567 | 259,402 |
| Right of use asset | 4,245 | 8,661 | 9,172 | 2,126 | 24,204 |
| Intangible assets and goodwill | 62,984 | 58,664 | 40,383 | 4,831 | 166,862 |
| Equity-accounted investees | - | 25,872 | - | - | 25,872 |
| Other non-current assets | 2,991 | 11,866 | 116 | 2,823 | 17,796 |
| Non-current assets | 179,184 | 162,130 | 138,475 | 14,347 | 494,136 |
| Current assets | 200,397 | 152,459 | 114,451 | -61,658 | 405,649 |
| Total assets | 379,581 | 314,589 | 252,926 | -47,311 | 899,785 |
| Equity | -170,092 | -69,499 | -46,033 | -128,608 | -414,232 |
| Liabilities | -209,489 | -245,090 | -206,893 | 175,919 | -485,553 |
| Total equity and liabilities | -379,581 | -314,589 | -252,926 | 47,311 | -899,785 |
| Working Capital | 8,835 | 52,885 | 28,418 | 1,241 | 91,379 |
| Capital expenditure(1) | 6,181 | 3,279 | 6,804 | 1,574 | 17,838 |
| The | |||||
|---|---|---|---|---|---|
| In thousands of euro | Netherlands / Belgium |
Germany / Poland(2) |
United Kingdom |
Group / | eliminations Consolidated |
| External revenues | 609,363 | 210,565 | 321,634 | - | 1,141,562 |
| Inter-segment revenues | 20,068 | 206 | - | -20,274 | - |
| Revenue | 629,431 | 210,771 | 321,634 | -20,274 | 1,141,562 |
| Gross profit | 126,948 | 27,107 | 63,688 | -38 | 217,705 |
| Other operating income | 4,704 | - 3 | 387 | 2 | 5,090 |
| Operating expenses | -88,312 | -22,864 | -58,530 | -7,935 | -177,641 |
| Operating profit | 43,340 | 4,240 | 5,545 | -7,971 | 45,154 |
| Depreciation, amortisation and impairment | 3,277 | 1,344 | 5,927 | 1,520 | 12,068 |
| EBITDA | 46,617 | 5,584 | 11,472 | -6,451 | 57,222 |
| At 31 December 2018 | |||||
| Property, plant and equipment | 109,903 | 57,522 | 89,174 | 4,956 | 261,555 |
| Intangible assets and goodwill | 64,065 | 59,296 | 40,466 | 4,196 | 168,023 |
| Equity-accounted investees | - | 25,392 | - | - | 25,392 |
| Other non-current assets | 2,552 | 10,522 | 107 | 3,251 | 16,432 |
| Non-current assets | 176,520 | 152,732 | 129,747 | 12,403 | 471,402 |
| Current assets | 189,386 | 147,923 | 121,072 | -56,066 | 402,315 |
| Total assets | 365,906 | 300,655 | 250,819 | -43,663 | 873,717 |
| Equity | -158,213 | -66,440 | -51,081 | -165,019 | -440,753 |
| Liabilities | -207,693 | -234,215 | -199,738 | 208,682 | -432,964 |
| Total equity and liabilities | -365,906 | -300,655 | -250,819 | 43,663 | -873,717 |
| Working Capital | -1,053 | 53,148 | 33,215 | -9,017 | 76,293 |
| For the six months ended 30 June 2018 | |||||
| Capital expenditure(1) | 6,410 | 1,807 | 7,283 | 763 | 16,263 |
(1) Additions to intangible assets and property, plant and equipment (2) 2018 excluding Poland
There is no significant seasonal pattern when comparing the first with the second half of the year.
On 31 May 2019 ForFarmers acquired a local business in the United Kingdom. The purchase consideration amounts to €1.2 million of which €0.3 million is a contingent consideration. The provisional fair values of the acquired assets has been determined at €1.2 million, which results in a goodwill of nil. This acquisition does not have a material impact on the Group in the context of the disclosure requirements of IFRS 3 (Business Combinations).
There were no significant acquisitions in the six months ended 30 June 2018.
There were no disposals in the six months ended 30 June 2019.
In the six months ended 30 June 2018 ForFarmers disposed its agriculture activities to CZAV. This concerns non-livestock feed related products (e.g. fertilizers, crop protection products and seeds) that ForFarmers supplies to Dutch farmers. CZAV acquired these activities and the associated storage facility on 5 February 2018. ForFarmers received €5.7 million on the completion date of the transaction, which resulted in a gain of €4.5 million.
Gross profit decreased with €3.6 million compared to the six months ended 30 June 2019. Excluding the positive foreign currency effect (€0.7 million) and net acquisition/divestment effect (€14.4 million) gross profit decreased by €18.7 million.
The other operating income in the six months ended 30 June 2019 mainly relates to the divestment of property in the Netherlands (€0.9 million).
The other operating income in the six months ended 30 June 2018 mainly relates to the sale of the agriculture activities to CZAV. Furthermore, Forfarmers received a supplementary payment of €0.4 million for the sale of a subsidiary (2015) in the United Kingdom.
The increase in total operating expenses amounting to €28.7 million contains a negative foreign currency effect (€0.7 million) and net acquisition/divestment effect (€14.0 million negative). Without these effects the operating expenses increased by €14.0 million. Among others due to incidental items amounting to €7.9 million (refer to Note 12), an increase of employee benefit expenses and higher energy and maintenance costs.
Net finance result amounts to €1.3 million positive (30 June 2018: €1.2 million negative) and includes, among others, a €5.0 million remeasurement (gain) of the earnouts, partly offset by €2.4 million interest accruals (loss) on the earn-outs as well as on the put-option liability, both related to acquisitions (refer to Note 12).
The Executive Committee has defined 'underlying metrics' as performance measures. These metrics exclude the impact of incidental factors from the IFRS values. The Executive Committee believes these underlying measures provide a better perspective of ForFarmers' business development and performance, as they exclude the impact of significant incidental items, which are considered to be non-recurring, and are not directly related to the operational performance of ForFarmers. The underlying metrics are reported at the level of operating expenses, EBITDA, EBIT and profit attributable to Shareholders of the Company.
Four types of adjustments are distinguished: i) Impairments on tangible and intangible assets;
For the six months ended 30 June 2019
ii) Business Combinations and Divestments and divestment related expenses, including the unwind of discount/fair value changes on earn-outs and options, dividend relating to non-controlling interests at anticipated acquisitions; iii) Restructuring; and iv) Other, comprising other incidental non-operating items.
The Group's definition of underlying metrics may not be comparable with similarly titled performance measures and disclosures by other companies. ForFarmers has earlier issued its guidance for the medium term of an on average annual underlying EDITDA growth in the mid single digits at constant currencies.
| In thousands of euro | IFRS Impairments | Business Combinations and |
Divestments Restructuring | Other | Total APM items |
Underlying excluding APM items |
|
|---|---|---|---|---|---|---|---|
| EBITDA(1) | 33,499 | - | 877 | -2,625 | -510 | -2,258 | 35,757 |
| EBIT | 8,976 | -4,718 | 877 | -2,625 | -510 | -6,976 | 15,952 |
| Net finance result | 2,619 | - | - | 2,619 | |||
| Tax effect | 948 | -220 | 582 | 162 | 1,472 | ||
| Profit attributable to Shareholders of the Company |
8,974 | -3,770 | 3,276 | -2,043 | -348 | -2,885 | 11,859 |
| Earnings per share in euro(2) | 0.09 | -0.04 | 0.03 | -0.02 | -0.00 | -0.03 | 0.12 |
For the six months ended 30 June 2018
| In thousands of euro IFRS Impairments Divestments Restructuring Other items EBITDA(1) 57,222 - 4,922 - - 4,922 |
Underlying excluding APM items |
|---|---|
| 52,300 | |
| EBIT 45,154 484 4,922 - - 5,406 |
39,748 |
| Net finance result -46 - - -46 |
|
| Tax effect -121 -1,206 - - -1,327 |
|
| Profit attributable to Shareholders 34,796 363 3,670 - - 4,033 of the Company |
30,763 |
| Earnings per share in euro(2) 0.35 0.00 0.04 - - 0.04 |
0.31 |
(1) EBITDA is operating profit before depreciation and amortization.
(2) Earnings per share attributable to Shareholders of the Company
The H1 2019 Alternative Performance Measures (APM) items before tax comprise:
The H1 2018 Alternative Performance Measures (APM) items before tax comprised:
Considering the APM items the underlying effective tax rate 2019 would be 25.6% (2018: 20.3%).
Income tax expense is recognised based on management's best estimate of the weighted-average annual income tax rate expected for the full financial year multiplied by the pre-tax income (excluding the share of the result participation accounted for based on the equity method, after taxes) of the interim reporting period.
The Group's consolidated effective tax rate for the six months ended 30 June 2019 is 26.8% (six months ended 30 June 2018: 22.4%). The higher effective tax rate is mainly the result of non tax deductible expenses and a lower innovation box tax benefit in the Netherlands. The impact of the non tax deductible interest expenses regarding the earn outs and put-option liability of acquisitions is almost entirely offset by the remeasurement of the earn outs.
As of 30 June 2019 a net current tax asset has been recognised amounting to €7.8 million (31 December 2018: net tax liability of €3.1 million) as a result of advanced payments in the first six months of 2019.
Movements on property, plant and equipment during the six months ended 30 June 2019 are specified as follows:
| In thousands of euro | Total |
|---|---|
| Cost | |
| Balance as at 1 January 2019 | 520,018 |
| Acquisitions through business combinations | 83 |
| Additions | 17,173 |
| Reclassification assets under construction | -509 |
| Reclassification to right of use asset | -1,024 |
| Disposals | -7,634 |
| Effect of movements in exchange rates | 94 |
| Balance as at 30 June 2019 | 528,201 |
| Balance as at 30 June 2019 | -268,799 |
|---|---|
| Effect of movements in exchange rates | 106 |
| Disposals | 7,117 |
| Reclassification to right of use asset | 77 |
| (Reversal of) impairment losses on plant and equipment |
-4,717 |
| Depreciation | -12,919 |
| Balance as at 1 January 2019 | -258,463 |
| At 1 January 2019 | 261,555 |
|---|---|
| At 30 June 2019 | 259,402 |
The investments mainly consist of trucks (€3.3
million), plant equipment (€2.5 million), investments in the production facilities in Deventer and Calveslage (€1.8 million), IT hardware (€0.9 million) and other individual smaller investements.
The reclasification to right of use assets relates to the transition to IFRS 16 and consists of assets previous recognised as financial lease.
Movements on right of use assets during the six months ended 30 June 2019 are specified as follows:
| In thousands of euro | Total |
|---|---|
| Cost | |
| Balance as at 31 December 2018 | - |
| Transition to IFRS 16 | 24,987 |
| Balance as at 1 January 2019 | 24,987 |
| New lease contracts | 1,418 |
| Reclass (from property, plant and equipment) | 1,024 |
| Lease contracts ended | -8 |
| Remeasurement | -562 |
| Effect of movements in exchange rates | -1 |
| Balance as at 30 June 2019 | 26,858 |
| Balance as at 30 June 2019 | -2,654 |
|---|---|
| Effect of movements in exchange rates | 22 |
| Lease contracts ended | 8 |
| Reclassification (from tangible assets) | -77 |
| Depreciation | -2,607 |
| Balance as at 1 January 2019 | - |
| At 1 January 2019 | 24,987 |
|---|---|
| At 30 June 2019 | 24,204 |
The new lease contracts mainly relate to new lease cars in the Netherlands and the United Kingdom. The remeasurement relates to a change in the (expected) lease term of the lease contract of a production location in the United Kingdom.
The reclasification from property, plant and equipment relates to the transition to IFRS 16 and consists of assets previous recognised as financial lease. Based on a purchase option in these contracts the expected remaining useful life is longer than the lease term, which results at transition date in an asset value above the value of the lease liability.
Movements on intangible assets and goodwill during the six months ended 30 June 2019 are specified as follows:
| In thousands of euro | Goodwill | Intangible assets |
Total |
|---|---|---|---|
| Cost | |||
| Balance as at 1 January 2019 |
110,312 | 86,537 | 196,849 |
| Acquisitions through business combinations |
44 | 1,318 | 1,362 |
| Additions | - | 665 | 665 |
| Reclassification assets under construction |
- | 509 | 509 |
| Effect of movements in exchange rates |
376 | 146 | 522 |
| Balance as at 30 June 2019 |
110,732 | 89,175 | 199,907 |
| Balance as at 1 January 2019 |
- | -28,825 | -28,825 |
|---|---|---|---|
| Amortisation | - | -4,280 | -4,280 |
| Reclassification from property, plant and equipment |
- | - | - |
| Effect of movements in exchange rates |
- | 61 | 61 |
| Balance as at 30 June 2019 |
- | -33,044 | -33,044 |
| Carrying amounts | |||
| At 1 January 2019 | 110,312 | 57,712 | 168,024 |
| At 30 June 2019 | 110,732 | 56,131 | 166,863 |
The addition to goodwill of €44 thousand relates to an adjustment of the purchase price allocation of Voeders Algoet. The acquisitions through business combinations consist of the client relationships of the acquisition in the United Kingdom, refer to Note 6 for additional information.
Goodwill acquired through business combinations with indefinite lives is allocated cash flow generating units for impairment testing. The Group performed its annual impairment test in the third quarter of 2018.
For the cash flow generating unit the United Kingdom an additional goodwill impairment test has been performed as at 30 June 2019, because an indicator for a potential goodwill impairment was identified during the six months ended 30 June 2019. The difference between the recoverable amount and carrying amount at 30 June 2019 was €17.6 million (2018: €30.9 million) and goodwill for the United Kingdom amounted €23.1 million.
A reasonable change in the assumptions could have resulted in a recoverable amount below the carrying amount of the cash flow generating unit. The key assumptions used in the goodwill impairment test as of 30 June 2019 of the United Kingdom and the changes to these assumptions which would have resulted in a recoverable amount equal to the carrying amount are included in the table below:
| In percentage | Discount rate pre tax |
Terminal value growth rate |
Expected EBITDA growth rate(1) |
|---|---|---|---|
| Assumptions used | 9.20% | 0.75% | 7.94% |
| Change | 0.88% | -0.95% | -1.26% |
| Recoverable amount equals carrying amount |
10.08% | -0.20% | 6.68% |
(1) Expected EBITDA growth compared to 2018.
For the other cash generating units and for other intangible assets no indicators for potential impairment were identified.
The amounts under equity-accounted investees (€25,872 thousand as per 30 June 2019, respectively €25,392 thousand as per 31 December 2018) fully relate to HaBeMa Futtermittel Produktions- und Umschlagsgesellschaft GmbH & Co. KG (HaBeMa), the only joint venture in which the Group participates. HaBeMa is one of the Group's suppliers and is principally engaged in trading of raw materials, storage and transhipment, production and delivery of compound feeds in Hamburg, Germany.
HaBeMa is structured as a separate vehicle and the Group has a residual interest in the net assets of the entity. Accordingly and consistent with the last annual financial statements, the Group has classified its interest in HaBeMa as a joint venture. The Group does not have any commitments or contingent liabilities relating to HaBeMa, except for the purchase commitments of goods as part of the normal course of business.
At 30 June 2019 the total amount of inventories decreased by €8.2 million to €85.3 million, without the acquisition effect of €7.7 million the decrease is €15.9 million. During the six months ended 30 June 2019 there were no material inventory write-downs recognised in the statement of profit or loss (six months ended 30 June 2018: idem).
At 30 June 2019, the authorised share capital comprised 106,261,040 ordinary shares and 1 priority share of €0.01 each. At the balance sheet date all shares were issued and fully paid.
At the General Meeting of 26 April 2019 the dividend was approved at €0.30 per share. The dividend contains a dividend of €0.283 and a special dividend of €0.017. This resulted in a total dividend of €30.1 million (including dividend taxes to be paid to the tax authorities).
In accordance with the dividend policy the payable dividend is offset (if applicable) with outstanding Group trade receivables and the receivable from the Coöperatie FromFarmers U.A. This results in an actual payment of dividend (including dividend tax to be paid to the tax authorities) in 2019 of €29.4 million (including €0.4 million dividend to the minority shareholder of ForFarmers Thesing Mischfutter GmbH & Co. KG). The treasury shares are not entitled to dividend.
The General Meeting of Shareholders empowered ForFarmers at 26 April 2019, for a period of 18 months, to start a buy-back programme for own shares for (a) an amount of €30 million to among others have a more efficient balance at Group level and (b) for the execution of the employee participation plans in 2019. The Group has bought back 0.6 million shares in the period 3 May 2019 until 30 June 2019, for a total amount of €4.3 million (including commission fees), of which the remaining amount of €0.2 million has been settled with the bank in the beginning of July. Depositary receipts were reissued for an amount of €1.9 million (0.3 million shares) for the employee participation plans. The balance for purchase of own shares amounts to €62.4 million (31 December 2018: €60.0 million) (including commission fees).
On 26 April 2019, the Group launched two employee participation plans. One plan relates to members of the Executive Committee and senior management, the other plan relates to other employees. The conditions of both plans are consistent with the participation plans applicable for 2018 which have been disclosed in the notes of the last annual financial statements.
The value of the depositary receipts of the Company, for which the employee could buy their depositary receipts, was determined as the average Euronext closing price in the 5 trading days during the period 2 May - 8 May 2019 and amounted to €7.20.
The total number of participants of all active employee participation plans comprises 17.6% of the total number of the Group's employees.
Consistent with the last annual financial statements, separate employee benefit plans are applicable in the various countries where the Group operates.
| In thousands of euro | 30 June 2019 |
31 December 2018 |
|---|---|---|
| Liability for net defined benefit obligations |
28,865 | 28,683 |
| Liability for other long-term service plans |
5,124 | 4,813 |
| Total | 33,989 | 33,496 |
The following table shows a reconciliation from the opening balance to the closing balances for the net defined benefit liability and its components.
| Total net | |
|---|---|
| defined | |
| benefit | |
| In thousands of euro | liability |
| Balance at 1 January 2019 | 28,683 |
|---|---|
| Current service cost | 483 |
|---|---|
| Administrative expenses | - |
| Interest cost (income) | 300 |
| 783 |
| 4,654 | |
|---|---|
| Effect of movements in exchange rates | 10 |
| Remeasurement loss | 4,644 |
| 28,865 |
|---|
| -5,255 |
| -5,255 |
The remeasurement loss of €4.6 million is mostly caused by actuarial losses due to the decreased interest rate in the Netherlands and the United Kingdom for the six months ended 30 June 2019.
The increase of the provisions is mainly due to the additions to the restructuring provision as a result of the closing of certain feed mills. Next to the increase in the provisions based on the announced efficiency programme.
The following table shows the carrying amounts and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.
| Carrying amount | Fair value | |||||||
|---|---|---|---|---|---|---|---|---|
| In thousands of euro | Mandatory at FVTPL - others(1) |
Fair value - hedging instruments |
Amortized costs |
Total | Level 1 | Level 2 | Level 3 | Total |
| Financial assets measured at fair value | ||||||||
| Fuel swaps used for hedging (derivatives) |
- | 159 | - | 159 | - | 159 | - | 159 |
| - | 159 | - | 159 | - | 159 | - | 159 | |
| Financial assets not measured at fair value | ||||||||
| Equity securities (other investments) |
- | - | 28 | 28 | - | - | - | - |
| Trade and other receivables(2) |
- | - | 266,246 | 266,246 | - | - | - | - |
| Cash and cash equivalents |
- | - | 54,020 | 54,020 | - | - | - | - |
| - | - | 320,294 | 320,294 | |||||
| Financial liabilities measured at fair value | ||||||||
| Contingent consideration | -15,037 | - | - | -15,037 | - | - | -15,037 | -15,037 |
| Put option liability | -34,593 | - | - | -34,593 | - | - | -34,593 | -34,593 |
| Forward exchange contracts used for hedging (derivatives) |
- | -13 | - | -13 | - | -13 | - | -13 |
| -49,630 | -13 | - | -49,643 | - | -13 | -49,630 | -49,643 | |
| Financial liabilities not measured at fair value | ||||||||
| Bank overdrafts | - | - | -64,285 | -64,285 | - | - | - | - |
| Loans and borrowings | - | - | -50,533 | -50,533 | - | - | - | - |
| Lease liabilities | - | - | -23,814 | -23,814 | - | - | - | - |
| Trade and other payables(3) |
- | - | -245,970 | -245,970 | - | - | - | - |
| - | - | -384,602 | -384,602 | - | - | - | - |
(1) Fair value through profit and loss
(2) Excluding derivatives and other investments
(3) Excluding contingent considerations and the put option liability
The following table show the valuation technique used in measuring Level 2 fair values, as well as the significant unobservable inputs used.
| Type | Valuation technique | Significant unobservable inputs |
|---|---|---|
| Forward exchange contracts |
Forward pricing: The fair value is determined using quoted forward exchange rates at the reporting date and present value calculations based on high credit quality yield curves in the respective currencies. |
Not applicable. |
| Interest rate swaps and fuel swaps |
The Group enters into derivative financial instruments with financial institutions with investment grade credit ratings. Derivative financial instruments are valued using valuation techniques, which employs the use of market observable inputs. The most frequently applied valuation techniques include swap models, using present value calculations. |
Not applicable. |
| Contingent consideration and put option liability |
The valuation model considers the present value of expected payment, discounted using a risk-adjusted discount rate. The expected payment is determined by considering the possible scenarios of forecast sales volume / EBITDA developments, the anticipated net debt position, the amount to be paid under each scenario and the probability of each scenario. |
• Forecast annual sales volume / EBITDA growth rate. • Forecast receipts gross trade receivables. • Forecast net debt position. • Risk-adjusted discount rate. The estimated fair value would increase (decrease) if: • the annual sales volume / EBITDA growth rate were higher (lower). • the receipts of the gross trade receivables vary positive (negative) from the standard payment terms. • the actual net debt postion varies positive (negative) from anticipated position. • the risk-adjusted discount rate were lower (higher). |
| Type | Valuation technique | Significant unobservable inputs |
|---|---|---|
| Equity securities (non current) |
For investments in equity instruments that do not have a quoted market price in an active market for an identical instrument (i.e. a Level 1 input) disclosures of fair value are not required. |
Not applicable. |
| Loans and receivables (non-current) |
Discounted cash flows. | Not applicable. |
| Cash, trade and other receivables and other financial liabilities (current) |
Given the short term of these instruments, the carrying value is close to the market value. |
Not applicable. |
| Other financial liabilities (non-current) |
Discounted cash flows. The fair value of the long-term debts is equal to the carrying value as floating market-based interest rates are applicable consistent with the financing agreement. |
Not applicable. |
The increase of the net debt position to €60.8 million (31 December 2018: €17.1) is mainly due to lower operating cash flows, in combination with investments (€16.8 million), the dividend payment of €29.4 million and the share buy-back programme (€2.3 million).
During the six months ended 30 June 2019 the Group has applied derivatives to hedge the risks associated with fuel prices and foreign currency risks. In the frame of these cash flow hedges, maturities relate to realisation dates of hedged items and therefore cash flow hedge accounting is applied.
On 25 June 2019 ForFarmers signed a new €300 million credit facility (multi-currency revolving facility) with an international syndicate of banks. This facility replaces the previous facility, which was also €300 million. The previous credit facility was signed in 2014 and would mature on 31 January 2020. The new facility expires on 25 July 2024 and includes two one-year extension options. The facility is provided by an international syndicate of banks, consisting of ABN AMRO, HSBC, ING, KBC and Rabobank.
The covenant guidelines are not changed materially compared to the previous facility.
The local secured bank loans relating to the entities Voeders Algoet (Belgium) and Tasomix (Poland), which are acquired in 2018, are stil in place as at 30 June 2019. ForFarmers intends to settle these local loans in the second half of 2019 with the new facility as mentioned above.
The purchase commitments for raw materials decreased compared to 31 December 2018 by €187.6 million to €421.6 million. The other commitments and contingencies, as disclosed in the last annual financial statements, did not change materially during the six months ended 30 June 2019.
During the six months ended 30 June 2019 there were no material changes in respect of the nature and size of the related parties compared with the last annual financial statements.
No major events after the reporting date have occured.
New standards and amendments to standards issued but not yet effective as of the date of publication of these Group's interim financial statements are set out below. The listing of standards and interpretations issued are those that the Group reasonably expects to have an impact on disclosures, financial position or performance when applied at a future date. The Group shall adopt these standards and interpretations when they become effective and are endorsed by the European Union (EU). The Group has performed an assessment on the possible effects of the for ForFarmers relevant amendments of IFRS 3 (Business combinations), IAS 1 (Presentation of financial statements) and (IAS 8 Accounting policies, Changes in Accounting estimates and errors). The Group does not expect any impact on the current financial position and results.
Lochem, 15 August 2019
Executive Board ForFarmers N.V. Yoram Knoop, CEO Arnout Traas, CFO Adrie van der Ven, COO
Supervisory Board ForFarmers N.V. Cees de Jong, Chairman Sandra Addink-Berendsen, Vice-Chair Roger Gerritzen Vincent Hulshof Cees van Rijn Erwin Wunnekink
Unaudited
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