Dutch feed group releases trading update

Concerns about Brexit bearing down on UK agri business: ForFarmers

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ForFarmers says the market circumstances in the UK remain challenging in the short term. 

“Farmers [in the UK] are uncertain about the financial consequences of the Brexit for the agricultural sector. They are, therefore, cautious in taking investment decisions with respect to possibly increasing of their herd size or expanding or improving their farm businesses,” noted the Dutch feed manufacturer as it released a trading update for Q1 2017. 

AMR, phosphate reduction 

ForFarmers said, on the innovation front, it has been proactive in looking at ways to reduce in-feed medication, particularly in the UK, running a number of antimicrobial resistance focused events in the past quarter to discuss the topic with UK pig farmers, veterinarians, processors and retailers.

It said it has also been placing a lot of emphasis on feed innovation, advice and tools for dairy and pig farmers to help them monitor and reduce phosphate production.

Due to the very low milk prices in the first half of 2016, UK dairy farmers started to reduce their herd sizes. While milk prices have improved from the second half of last year, recovery of the herd size in the UK is taking longer than expected, reported ForFarmers.

“The smaller dairy herd and increased competition in this sector have resulted in clearly lower volumes in the ruminant sector in the first quarter of 2017 [compared to Q1 2016].”

Moreover, an increase in the UK pig herd is not yet evident, it added.

Currency challenges have not helped either:

“The impact of the strongly devaluated pound sterling (first quarter 2017 compared to first quarter 2016) has led to a translation loss in ForFarmers' consolidated result (in euro).” 

The restructuring of UK operations, initiated in the second half of 2016, led to a decrease in costs in the first quarter of 2017, but ForFarmers said not by enough to compensate for the decline in margin.

Dutch market results

However, the feed group, which has sales of around 9.3m tons of feed annually, reported a solid performance in the Netherlands and the German and Belgian markets in the quarter. 

“The volume growth includes like-for-like growth and the contribution of the swine feed company Vleuten-Steijn, which was acquired on 1 October 2016.”

Nevertheless, ForFarmers warned the phosphate regulation in the Netherlands would affect its business in the second half of this year

The Dutch government imposed phosphate-reducing measures on the country's dairy farmers in March this year in order for the sector to comply with the phosphate ceiling, as set by the EU, by the end of this year. ForFarmers said it expects the measures will lead to a reduction in animal numbers and, consequently, to a decline in feed volumes sold to the dairy sector this year.

Feed volumes sold to the “slightly shrinking swine sector” has increased significantly, it reported. It attributed that development to the acquisition of Vleuten-Steijn but also noted Dutch swine farmers have seen prices for pig meat improve lately due to continuing strong demand from China.

The Dutch layer and broiler segments are also reportedly performing for ForFarmers, but it stressed that broiler farmers there continue to face competition from Eastern Europe.

Reudink, its organic feed line, has continued the increasing volume trend of the past years in the quarter in the Netherlands.

Germany and Belgium  

Volume growth across all segments was notable in Germany and Belgium in the first quarter of 2017, it said.

“The volume growth in the ruminant sector is attributable to, among other things, attracting a number of new, larger, dealers in Germany dedicated specifically to the ForFarmers assortment. In the swine sector, the volume increase is mainly due to a larger customer base. As in the Netherlands, swine farmers benefit from the higher pig meat prices.”

It cautioned that swine farmers in Germany are facing new sustainability and environmental regulations, which could limit their expansion possibilities and increase their business costs.

The group said more volume has been sold in the poultry sectors in Germany and Belgium, both to broiler farmers and new customers in the layer sector.

Outlook 

Yoram Knoop, CEO of ForFarmers, said he expects the group, which ad revenues of over €2.1bn in 2016, to reach an earlier disclosed target on earnings before interest, taxes, depreciation, and amortization (EBITDA) growth of mid-single digits at constant currencies.  

“The first quarter results make us feel confident that we are on course,” he said.

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