ForFarmers N.V. (FFARM) Earnings Call Transcript

Hello, and welcome to ForFarmers Half Year 2025 Results Presentation. My name is Laura, and I will be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions] I will now hand you over to your host, Pieter Wolleswinkel, CEO, to begin today's conference. Thank you.

Thank you, and welcome from Lochem. And as said, my name is Pieter Wolleswinkel. I'm sitting here with Marloes Roetgerink, our CFO; and Rob Kiers, our COO. Today, we will present our first 6 months results of 2025. I'll start off with presenting the key events. Marloes will present the results, and I'll close off with a view on our management agenda for the remainder of the year. And after that, there will, as always, be the opportunity to ask questions. If we take a look at our first 6 months results, we can be very satisfied. We see a strengthening of our market position, which is fully in line with the approach that we've taken as of 2023, a customer-centric approach, combined with strong technical results at the farmers we serve, and especially the latter is crucial, that is the fundament under our company. If we take a look at the Netherlands, we see that the impact from the buyout schemes are coming in. That obviously also affects our company, especially in the pig sector. Yet we are able to maintain our volumes, our compound feed volumes through market share gains in all sectors. In Germany, we've started with the joint venture, and I'll get back later to that in more detail. Then we announced an acquisition in Germany of a feed mill to produce organic feeds. We do that under the brand Reudink. And by taking this step, we are better able to serve local organic segments in this important market, so a good step forward. We also see that the performance in Poland is strong at this point in time, and therefore that the capacity expansion, as announced, needs to progress and is progressing according to plan. Then a special word on the U.K. We see an exceptional improvement of the results. And therefore, we're also pleased that we can announce that the reorganization is finalized. Summarizing the results, we see a strong increase of our volumes to 5.2 million tonnes. The key drivers are coming from the acquisition of Van Triest with the co-products coming in, and also the consolidation of the joint venture is supporting the compound feed volumes. M&A is an important part of our strategy, yet we've always expressed our ambition to grow autonomously. And it is good to see that on a like-for-like base, we are increasing volumes, 2.2% of our total volume. The profit development is satisfying. The costs are under control. What we have said before, we take a close look at this point in time at our underlying net profit attributable to shareholders, and the latter especially given that a large part of our business comes from joint ventures. And it is good to see that, that profit is increasing from EUR 16 million to over EUR 23 million. If we then look at the return on capital employed end of 2024, we were at 13%, and we see a further increase to more than 14% based on the results of the past 12 months. Then looking at our sustainability agenda, we are making progress according to the 3 sustainability pillars that we have defined, so a lower carbon footprint, enhancing circularity and the protection of biodiversity. Some examples are given on this slide. And a few to highlight, for example, on our Scope 3 emissions, which is obviously the biggest part of our emission, we are investing in our factories to be able to process more raw materials that come from the food industry, co-products as we call them. Examples are crisps, but also dairy streams that come in our pig feed factories. And by taking such an approach, we can lower our carbon footprint. This is also aligned with the steps that we are taking with regards to the circularity agenda as we have it. And obviously, the step that we've taken with the acquisition of Van Triest helps tremendously to use more co-products in our nutritional concepts. The protection of the biodiversity, especially in the Dutch market. Obviously, there is a great need to make progress in the nitrogen dossier, and it is good to indicate that the Dutch chain partners have undersigned a feed covenant. Also, the feed industry has committed themselves to that. And so at ForFarmers, we are taking this very serious. We lower the protein levels in the rations that we make with dairy farmers. And based on that, we can lower their nitrogen emissions. So it is not the solution for the issue, but it is a significant contribution to make sure that farmers can make progress and also that the issue that we have as a Dutch -- in the Dutch market, that, that is getting towards solutions. And let's zoom in on our clusters. As always, we're starting off with the Netherlands and Belgium. Obviously, the volume strongly supported by the Van Triest acquisition. But as mentioned, especially also satisfying to see that we are able to keep the compound feed volumes stable despite the buyout scheme. The basis really, at this point in time, the good technical results and advice and the competitive feed prices that we can deliver, and we are able to combine this with a very good profitability, and that offers the opportunity to keep on investing in this for us, a very important cluster. Then moving to the east, the cluster Germany and Poland. Before I go to the details, I'd like to explain the steps that we have taken with the new formed joint venture ForFarmers, team agrar. So in this new joint venture, 3 companies come together. Obviously, our feed activities, also the feed activities of team agrar. team agrar is a subsidiary of the Danish co-op DLG. That gives in total 8 feed factories in the northern part of Germany. Also included is HaBeMa. HaBeMa was already a joint venture by team agrar and ForFarmers, but it's now also fully included in the joint venture. HaBeMa is specializing at transshipment of raw materials that is done from 3 locations with access to road and rail and in Hamburg, also, as you can see on the picture, by water. With that, we get a better geographical coverage. We strengthen our portfolio, and we can bring the power of 3 companies together. And with that, we are sure we will achieve the synergies to have a strong long-standing position in this important and large market. Then looking at the results, starting off in Germany, we are pleased to see that also in this new setup, the existing businesses deliver the profit like they did before. So that is very good to recognize. With HaBeMa, we recognize an underperformance that has to do --- that the competitiveness of the exports from Germany and Central Europe at this point in time is at a lower level. So based on that, we also see that the results are lower than expected. On the other side, Poland, we announced in our Q1 results that there is impact from animal diseases, especially from bird flu, as example. But despite that, we recognize volume growth. Based on that volume growth, that is once again a confirmation that we need to keep on increasing our capacity in this very attractive and growing market, which is fully aligned with our strategy. Then moving from the east to the west, the United Kingdom. And with that, I would like to go back with you to early 2024. We were very disappointed with the 2023 results, and based on that, we started the reorganization. The reorganization had 2 parts: less overhead, that was already achieved end of last year, and also the divestment of 2 locations. First location was sold off end of last year as well and the second location is sold in April of this year. So that means that the plan, as we have it in this reorganization, is now completed. And it's very pleasing to recognize that the results are at a much better level. We see that the volumes are good. That is partly a temporary effect because we pushed hard for production, for integrations, the temporary [ full ] milling integrations of parties with their own slaughter houses and often also their own feed factories. And every now and then, they need partners to produce feed for them. So that has helped us in the past months. But given the divestments, that will go to a lower level. But it is, therefore, even more important that we grow in the ruminant sector, which strategically is defined as key for our U.K. strategy. We combine that with operating expenses that are going down and an improved capacity utilization of the plants, and that is all in all leading to a strong increase of profitability and a return on invested capital that has increased to 14%. And as you see, it was, for example, in 2003 -- it is very pleasing to identify that the effects of the reorganization are fully coming in. I think that is also a good moment to give the word to you, Marloes.

Good morning, everyone. Following Pieter's update, I'd like to walk you through the financial figures in a bit more detail. In the first half of 2025, we sold 5.2 million tonnes, representing an increase of over 21%. This growth was largely driven by the acquisition of Van Triest and the consolidation of the joint venture in Germany. On a like-for-like basis, so excluding acquisitions, total volume growth was 2.4%. Looking specifically at compound feed, we sold 3.2 million tonnes, an increase of 5.4%. On a like-for-like basis, this was an increase of 0.5%. Market positions have strengthened across all clusters. Our aim remains to deliver high-quality feed at a competitive price combined with ForFarmers advice. Our teams work hard every day to achieve this, and once again, they have done an excellent job. Revenues for the first half of the year amounted to over EUR 1.5 billion, up 16%, primarily driven by higher volumes. Gross profit reached nearly EUR 291 million, an increase of almost 70%, 5% on a like-for-like basis. Underlying operating expenses increased from over EUR 227 million in the first half year of last year to EUR 256 million in half year 1 2025, an increase of almost 13%, mainly due to acquisitions. On a like-for-like basis, the increase was very limited, just 0.3%. We saw merit increases, but this was almost entirely offset by strong cost control and lower energy expenses. This resulted in an underlying EBIT of EUR 35.8 million compared to EUR 22.7 million in half year 1 2024. Underlying depreciation and amortization amounted to EUR 25 million, up EUR 5 million due to acquisitions and investments. This leads to an underlying EBITDA of EUR 60.8 million versus EUR 42.6 million half year 1 2024. On the next slide, you find the bridge to the underlying net profit. Equity accounted entities declined due to the full consolidation of HaBeMa as of the 1st of March. HaBeMa also faced a challenging first half year due to limited competitiveness of the German commodity export market. Underlying income tax increased from EUR 3.7 million to EUR 7 million, driven by improved results and a slightly higher underlying effective tax rate. Noncontrolling interest amounted to EUR 1.2 million in half year 1, resulting in an underlying net profit attributable to shareholders of EUR 23.4 million compared to EUR 16 million in half year 1 2024. Underlying profit per share came to EUR 0.27 versus EUR 0.18 in the first half of 2024. ROACE increased from 10.7% end of June 2024 to 14.3% end of June 2025, exceeding our 10% target. The total amount of APMs adjustments made to arrive at underlying figures is very limited for the first half year. I will provide the breakdown on the next slide. APMs related to other operating income includes a noncash gain of EUR 4 million from the consolidation of HaBeMa. Assets must be revalued to fair value, which was EUR 4 million above book value. Additionally, our Burston mill was sold in Q2. The EUR 3.8 million of last year is related to the Piast acquisition. APMs related to amortization of previously acquired intangible assets amounted to EUR 5.5 million in half year 1 2025 versus EUR 4.2 million last year. In terms of net financing costs, you see a charge of EUR 3 million related to the put option liability of Tasomix in Poland. Last year, this was significantly higher due to the Piast acquisition. Now let's look at the capital structure. Total assets increased by over EUR 100 million compared to year-end 2024, mainly due to the consolidation of the German joint venture. This also led to an increase in equity, further supported by the half year 1 results. The increase was partly offset by the higher dividends. The solvency ratio stands at 38.7%, reflecting a healthy financial position. Overdue receivables is 8.4% versus 9.1% at year-end. Net debt stands at EUR 43.5 million, a decrease of over [ EUR 23 million ] versus year-end of December last year. This results in a net debt-to-EBITDA ratio of 0.38, providing room for investments in growth. On the next slide, we cover the cash flows. Operating activities generated nearly EUR 64 million in half year 1, a strong improvement compared to half year 1 2024, primarily driven by the higher profit and positive development in working capital movements. Investment outflows were lower than last year, mainly due to acquisitions in 2024. Financing outflows were higher due to increased dividend payments. Finally, a brief note on the financial statement of the German joint venture. As of March 1, we fully consolidated 100% of the compound feed activities of team agrar and activities of HaBeMa. Previously, our 50% stake in HaBeMa was recognized via the equity accounted entities. From March 1 to the end of June, the contribution from these activities amounted to nearly EUR 138 million in revenue and EUR 0.7 million in EBIT. 50% share attributable to the other joint venture partner is recognized in the minority interests. To compensate for the difference in valuation of the contributed activities, ForFarmers received a nominal cash payment of EUR 13.5 million, of which EUR 6 million was received in half year 1. As mentioned earlier, the transaction led to a one-off noncash gain of EUR 4 million reported as APM. The consolidation of HaBeMa has virtually no impact on underlying net profit. With that, I'd like to give back to Pieter. He will guide you through the management agenda for the second half of the year.

Yes. Thanks, Marloes. Indeed, let's have a look at the management agenda for the rest of the year. And it will be clear that our key aim is to stay on this track. We're very pleased with the results and therefore, we'll continue the path that we are going on at this point in time. That means that the continuation to gain market share, especially, I would also mention, in a challenging markets like the Netherlands. The capacity expansion in Poland and obviously also now further work on the ForFarmes-team agrar joint venture to make sure the synergies are achieved. Reudink, already mentioned that in my intro, strengthened our organic positions in Germany. Cost control will be high on the agenda. And also, we take a close look at the strengthening of our value chain cooperations, as an example, the relationships that we have with the poultry, slaughter houses in the diverse markets that we are in. And last but definitely not least, we will remain with our focus on sustainability according to the 3 pillars: carbon footprint reduction, enhancement of circularity and the protection of biodiversity. And with this, we come to the end of this presentation, and I would like to give the opportunity to ask questions.

[Operator Instructions] We'll now take our first question from Patrick Roquas of Kepler Cheuvreux.

First of all, congrats with the very good results. And I've got 3 questions for you. The first one is on the Netherlands. You mentioned the effects of the buyout schemes are coming in. Can you put some figures or quantification behind this? And should we see a more pronounced effect as of, let's say, the first half 2026? That's the first question. And secondly, on Poland, you are expanding capacity. Could you remind us of the -- let's say, the total amount of capacity to be added? And when is this to come on stream? And then thirdly, on the outlook, you provide us no financial outlook, which is fine. But can you share your expectations for, let's say, the different markets for the second half?

Yes. First of all, thanks for the compliment. Always appreciated. If we first look at the Netherlands at the buyout program, if you look at the program, it continues until November. So in November, the barns need to be empty as we call it. So up until that moment, there's still uncertainty what will be going on. By coincidence this morning, I received from a farmer a WhatsApp. Also he signed up for this buyout scheme, but indicates, "I'm not sure milk price is good. I'll probably continue." So this is still the phase that we are in. What we recognize is that the pig sector is affected strongly. The poultry and dairy is much to a lesser extent. So that means that indeed in the second half of this year, we will recognize that farmers will quit. That will affect, obviously, the volumes in this phase and also towards the first half of 2026. We will see the effect compared, obviously, to the first 6 months of 2025. So this is, let's say, where we stand. On your question on quantification, that is virtually impossible. There's still so much uncertainty, who will stop, who will continue. So therefore, even if I wanted to do it, I cannot do it because basically there's still farmers that are considering what they -- what to do. Then on Poland, on the capacity, we don't do announcements on that. In general, we do it when we acquire or when we really build a new factory. That's also what we did at the time in 2018 with the acquisition of Tasomix. So based on that, we don't give any announcement. But for us where it's about is that capacity is never a limiting factor. So we need to ensure that we grow our volumes and that the sales force is able to grow their volumes. So that is, let's say, strategically where this is about. So -- and then on your last question, if you -- indeed, we don't give any guidance on the second half of this year. But I think you can recognize, too, especially also the market story from my side, the pluses and minuses. So indeed, with the buyout scheme, we see that now the reorganization in the U.K. is finalized. We have seen in the first 6 months, the situation in Poland with avian flu, where -- we do expect that, that will take place to a lesser extent. So there are pluses and minuses in this story, which is, at the end of the day, also one of the reasons why we don't give any further guidance. But we feel very strongly that we are on track towards that what we want to achieve strategically.

And we'll now take our next question from Fernand de Boer of Degroof Petercam.

One is on the, let's say, overhead of corporate costs. If you look at that one, if I made a quick calculation, then it was -- the adjusted EBIT for that line was only minus EUR 5.9 million, significantly better than the H1 '24, but also H2 '24. So could you give a little bit idea what's going on there and how we should take going forward? That's the first question. And then I'd like to come back on the joint venture. If I look at your minority parts, which was actually lower, meaning that you had lower minority result this year. So is this meaning that actually the joint venture in total was bottom line loss-making? And you mentioned that -- Pieter, that you were looking for to create the synergies, et cetera. How much synergies do you think you can get out of this joint venture? I think you can now better info, yes, on that one. Then maybe the last one is on HaBeMa. You mentioned the market conditions, volatile results, but any outlook when you expect that to improve, maybe in the second half already or...

Yes. So I'll first reflect a bit more on the strategy, and I'll let Marloes pick up on the corporate cost question. If I look at the joint venture, indeed, we're not satisfied with especially also the HaBeMa results year-to-date, given the circumstances on the commodity export. What I clearly would like to emphasize is that, that is not new. So ForFarmers has a participation in HaBeMa now for 18, 19 years. And in that 18, 19 years, we've always seen a particular volatility because the exports dynamic are playing a big role in that. And that gives pluses and minuses. And we've seen that also 2023 was extremely strong. '24 was more in line with the averages that we recognize. And I also give some words, therefore, with that. That is basically what we said at that point in time. With regards to the synergies, I think we're still in an early phase. Obviously, we've made our outlook on the synergies that we want to achieve. What is good to mention is that we are pleased to see the results of the feed companies that are coming together, and that is especially also the base for these synergies. So far, so good, I would say it. And over the coming period, we need to see what out of the quantification comes back in that. But also needs –- and that's also what Marloes said, that, obviously, we got -- given the valuation difference between the company, there will be a payment of EUR 13.5 million. EUR 6 million already came in. So obviously, we will see that as part of that, what you described. With that, I would like to give Marloes the...

So we try to operate as efficient as possible, and also, we want to do that at group level. So what you see is that we have local in the lead, but also make sure that we try to see, okay, are there any activities that we can do more efficient locally? We try to shift that from group to local. At the same time, we see that on a group level, we have a lower run rate and we also have some lower M&A costs.