ForFarmers N.V. (FFARM) Earnings Call Transcript & Summary

Hello, and welcome to the ForFarmers Half Year Results 2021 Analyst Call. My name is Jess, and I'll be your coordinator for today's event. [Operator Instructions] I will now hand you over to your host, Caroline Vogelzang, to begin today's call. Thank you.

Good morning to all of you, and welcome to our audio webcast again for our first half 2021 results this time. We published our press release this morning at 7, followed by posting the presentation on our site. And in the room today, we have Yoram Knoop, who you all know, our CEO; and of course, our CFO, Roeland Tjebbes, who you also all know. who's handling the slides and myself. And but Yoram and Roeland will lead you through the presentation in a minute to just highlight and explain more about the results that we've announced. The audio webcast will be posted on our corporate slide afterwards as usual. And also, as usual, I would just like to highlight the disclaimer statement that everything that we say that is forward-looking, we do based on the knowledge that we have today and on our best estimates, but we also know that the world can change in a split second, so we'd just like to make that disclaimer. With that, Yoram, I'm going to hand over to you.

Thanks, Caroline, and good morning to all of you. Well, this morning, as I'm sure you've seen, we reported, from our point of view, disappointing results due to really very challenging market circumstances. And basically, the acquisitions could not fully offset the impact of the organic business, leading to a reduction in our EBITDA of about 15%. The key issues that we anticipated where especially around the very sharp raw material as well as energy price increases that could not be quick enough passed through to our customers due to a very competitive, again, market circumstances. Volumes were somewhat affected. But we saw the second quarter already an uptick versus the first quarter, so the key element of our first half year has been the pressure and at least the temporary pressure on our margins on top of the already reported incident in the first quarter relating to the poor sales contracts in Germany. And clearly, our customers see the squeeze as well. The cost of feed has increased substantially. And the cost of meat, milk and eggs is increasing, but at a slower pace so far than what we have seen the cost of their production increase. So their income is also being squeezed, and it will take time for them to recover from that. The good part is the acquisitions that we made earlier this year are actually well on track, both from an integration point of view as well as delivery in terms of results. So we remain optimistic that they are going to be very good additions to our future portfolio. Our efficiency program that we launched in anticipation of what we were expecting to be challenging circumstances is also on track. So we will be saving EUR 7 million in mainly employee-related costs compared to the level of 2019 -- sorry, 2020, by the end of next year. We also are making progress as a chain and as a sector to try to resolve the nitrogen issue that is so relevant, especially for our dairy business in the Netherlands. And with innovations, not just feed but also in systems that are being applied as a farm, we are now comfortable that a true solution can be provided to get to the required emission levels in terms of nitrogen, without having to force or reduce the sector as a whole. That also will be a far more efficient way of dealing with this issue rather than using multiple times of what would be required in innovation and taxpayers' money to buy our farms. So we will continue to work with our partners in the industry and also trying to influence that debate because we are almost convinced that the way out of this crisis, again, to combine in a healthy way, construction restore nature as well as guarantee a good agricultural sector can be created. And last, but not least, actually happy to see that our Supervisory Board has nominated our colleague, Pieter Wolleswinkel, who has been so far the CEO of ForFarmers of the Netherlands and comes with a strong background in this industry as the replacement for Adrie van der Ven, in the Statutory Board subject to shareholder approval in our next general meeting. If we look at developments, that first graph, I would say is obviously the relevant one that talks about this squeeze. The cost of feed and because of that -- well, due to the cost of raw materials has risen sharply over the last few months to levels that we have not had for a long period of time. And at the same point in time, the finished products of meat, elk milk and eggs has not risen with the -- to the same context. So that again defines the temporary squeeze that I was referring to. If you look specifically at the Netherlands, it is clear that the current situation not having a new government yet is causing ongoing certainty, especially related to this nitrogen debate, which is -- will undoubtedly be one of the key items that a new government will have to tackle. The big warm restructuring has actually been completed now. Initially, there were a lot more farmers that signed up for the program that's ultimately decided to really take advantage of that. The net result is that the number of big farmers in the Netherlands will be reduced by around 7%, which is slightly lower than our earlier estimate in terms of how many farmers would be taking advantage of that. A recent and actually a pretty profound development is what we see happening in the supermarkets relating to broilers. Since the beginning of this week, now all supermarkets in the Netherlands have signed up that by 2023, all of the broilers that they will be selling in their supermarkets will be through a concept called Better Life, which guarantees those chicken that they will have more space, they will have more light and they will have a longer life than so far is the case. So a big step forward in terms of sustainability of the sector. In Belgium, good thing is that the country has now been free of ASF for quite a while. That should help the very low level of prices that they were before, but at the same point in time, ASF, unfortunately, is still present in Germany, so the overall level of profitability is still lower and that is still not giving the right incentives yet for Belgium farmers to fill up their tables and to increase volumes again. If we look in Germany, similar to the Netherlands, but not to the same degree, we do expect that there will be fewer broilers per square meter, so they will get more space which will lead to a reduction in terms of the number of animals. But that welfare concept, that trend will also be profound in Germany over the next few years as well. And unfortunately, just a month ago, so far, ASF was just detected at wild boars in Eastern Germany, but now there have also been a few smaller farms that have been impacted. So the -- so it really seems that Eastern Germany, in particular, will be dealing with ASF for a few -- at least a few more months at a minimum, whereas the rest of Germany hopes that somehow it will get exception to start exporting that has not been granted yet. So that remains a concern that actually plays a pivotal role in the all European pig sector. In Poland, we do see more and more -- although it's fragile, but more and more positive news in the sense that farmers are starting to fill their barns again. There is still avian flu around and the avian flu was so profound that it also impacted mother animals. So it will take -- a parent stock, I should say. So it will take a while before that is fully resolved, but we see month-on-month that there is a gradual more recovery to a normal situation appearing in Poland. Last, but not least, the Brexit country, the United Kingdom, we have seen actually quite a few changes. The U.K. is a big and major importer of animal protein. But they were exporting some pigs to, for example, China as well as some dairy products to the continent. Very low percentages, but nevertheless, these export streams were important for them to optimize the whole value of that proposition. For example, in dairy, it's remarkable to see that since the Brexit, there's been an 80% reduction in that export. So whilst it was small, it has had an impact on the profitability of the sector as a whole. So dairy farmers are not generating a lot of cash and that has a subsequent impact on them wanting to invest in feed to get more milk. Another element that played a role in the U.K. is related to go with and the fact that they had a very stringent system to alarm people that had been in contact with COVID infections in the way that they immediately had to go in quarantine, a very strict system, but so strict that it actually took out a significant part of the labor force in the U.K. such that there was a shortage in truck drivers and plant operators. We did not experience that so much to an extent in our products. But in terms of the final products, that did -- that was impacted to an extent that the shelves in the supermarkets were no longer filled everywhere. So that is gradually now unfolding, and we expect -- we do see improvements but this has certainly played a role in the U.K. sector over the last few months. With that, could I hand it over in terms of our financial results to Roeland Tjebbes.

Thank you, Yoram. And also good morning from my side. What I will do is I will try to guide you through the results, and I will start with the underlying EBITDA development. And as you are aware, the underlying results are, without the exceptional items -- and we have a letter in this presentation, we have a slide on that. As you can see on the slide, I will focus in doing the analysis on 3 items, that is FX, which is limited. You can see that it's 0.1% and minus 0.1%. So I will refrain from that, and we will focus on M&A activities, which are the acquisitions of De Hoop and Mühldorfer and focus on the like-for-like, the autonomous development of our results. Looking at the volumes, you see that total feed and compound feed are both up, but almost, let's say, 2%, which is driven by the acquisitions that we have been doing. Like-for-like, we see that, especially in compound feed, we are down 1.1%. This is the effect that like Yoram already discussed the effect, of course, COVID in some of our markets, the warm restructuring in the pig sector in the Netherlands. But we also see that given the high raw material prices leading to high feed prices, that some of our customers are using more roughage, let's say, grass and hay instead of compound feed. And the volume pressure is especially felt in the ruminant and pig sector. Looking at gross profit, focusing on the like-for-like development, minus 5.4% down. As you can see, this is a higher decline than only the volume. Of course, lower volumes lead to lower gross profits, but we also faced margin pressure, what was discussed by Yoram as well. The overcapacity in the market leads to pressure on volumes and the fierce fight for our fifth battle for market share is also leading to this -- the lower margins on gross profit. The last effect on this line in gross profit is the German issue, which we already discussed in the Q1 update, and we had sold unfavorable sales contracts which was unfavorable for ForFarmers, and it's also included in this line. As you might be aware that is amounting to EUR 4 million. The underlying operating expenses are like-for-like again quite stable, and it's a kind of a mixed bag. We see a good contribution like Yoram, what he's saying on the efficiency programs. So they are helping out in lowering our cost, but we also see increased costs, especially for energy. But also, for example, our business process optimization program that we hire consultants to help us out with these programs. And that's, of course, leading to a bit higher cost. In conclusion, when we look at the total EBITDA, which is EUR 7.4 million down to [ EUR 14.8 million ] driven by the like-for-like, decline of 24%. It's about EUR 11 million, a bit more, and the acquisition effect, which is positive of EUR 4 million. So our acquisitions are contributing quite nicely. On the next slide, I will go a little bit deeper into our profit and loss accounts. I will only highlight some of the items. As you can see, the equity-accounted investees is contributing EUR 2.3 million, a bit down to last year. This is our 50-50 joint venture in Germany called HaBeMa. And they are doing 2 things. One is transhipment activities and the other one is compound feed producing, and the transhipment activities were a bit lower than the first half of last year, and that's why it's fractionally down. Less profit also means less taxes. So that's the EUR 5.5 million on income tax, which is, of course, lower than the year before. Conclusion on the underlying profit, EUR 24.4 million towards EUR 18 million more or less is driven by the lower EBITDA and the lower income taxes that we pay. Like I said, the alternative performance measures said the incidental items will be discussed later. And you can see on this slide already that it's EUR 7.5 million less last year. This was EUR 5 million. Next slide, you will see the ratios. Yes, the earnings per share, driven by the lower results is, of course, lower. And you can also see that our effective tax rate is in line with last year. So no devaluation of deferred tax assets at the moment. And our ROACE is down compared to last year to 18.5%. Then let's look at the capital structure. The total assets for our company has increased driven basically by 2 elements. One is the acquisitions. De Hoop and Mühldorfer, of course, contributed to higher assets, higher property, plant and equipment and higher working capital. And as you might have seen, we invested EUR 17 million on capital expenditures this year in the first half and compared to the depreciation that's higher. So that's contributing to a higher total asset base. The equity is about EUR 4 million down to last year when compared to the end of last year, at the 31st of December. We paid out a dividend of EUR 28 million in the first half. We had, of course, the addition of EUR 10 million of the net results, which is contributing to a higher equity. And you might remember that last year, we had to take a hit in the equity because of the revaluation of pensions. Now as expected, the discount rate increased again, and now we have a positive effect in our equity of about the same amount, EUR 10 million again, the revaluation of the pensions in the U.K. As you are aware, this is only a balance item, it's debt to equity, and it's not hitting cash or our P&L. Solvency down to 41%, but still in a decent place. And if we look at the working capital, we see the seasonal effect, it's growing compared to the end of last year. When comparing to the first half of last year, the 30th of June 2020, you will see that it increased -- decreased, an improvement of EUR 23 million. And seasonal effect we always have in the first half is mainly to do with more fertilizer business, arable sales, we call that, seed sales, which is leading to higher working capital in the first half. The overdue receivables are still all -- despite the challenging market, are still in a decent pace with 13.6%, a bit up. But given where our clients are, this is in a good shape. And if we look at the net debt, the net debt has increased since the last of December -- the 30th of December -- 31st of December, of course, driven by the acquisitions that we have been doing with De Hoop, with Mühldorfer and also with the capital expenditures that we have been taking. You see that later also in the cash flow statement. And also in the first half, we paid out the dividend, which is leading to a higher net debt. When compared to last year, you might have seen that the debt at the first half is lower than it was last year. Then to the cash flow statement. Yes, the net cash flow from operating activities mainly down because of the lower EBITDA. The investing activities, as already discussed, driven by the acquisitions of De Hoop and Mühldorfer and also our regular CapEx. And as you see in the financing activities, we did not do a share buyback this year, as you might -- you are aware, last year, August, we finalized the previous program which, of course, had an impact on our financing activities. This year, we don't have that. That's why you see a plus compared to the first half of last year. Then the alternative performance measures, we defined it in 4 different clusters, impairments, business combinations and divestments, restructuring and other. When we look at the business combination divestments, you see the first one, EUR 2.5 million on EBITDA. That's the sales of 2 of our assets, 1 in Belgium and 1 in the U.K. The same effect is also included on the EBIT line, the EUR 2.5 million. But there, we also take out the amortization on acquired clients as we have discussed also at year-end. That's an APM item, alternative performance measure. And the net effect on net result, finance results, this is the regular revaluation of our put option with Tasomix in Poland. Restructuring, as Yoram already alluded that we have our efficiency programs in place, sometimes that comes at a cost, which you can see restructuring. And in the column Other, you see the impact of several legal claims which we have, which is leading to an incidental item of EUR 3 million. The total being EUR 7.5 million, whereas last year, it was EUR 5 million. Then the highlights of the results per cluster. We have 3 clusters: Netherlands/Belgium, Germany/Poland and the U.K. Looking at the feed volume, you will see that it's quite stable for the cluster in the Netherlands. But when we take out the acquisitions, like-for-like, it's 3.8% -- sorry, on volumes, it's down. And you will see that this is mainly driven by all sectors. So in ruminants, we see that there was less feed per color. Like I said, there is more roughage and more grass and hay, which is fed to the animals and less compound feed. In the pig sector, we were suffering from the warm restructuring, and the poultry sector was still impacted by lower sales in the out-of-home segment, so less chickens to feed because of the closure of restaurants, of mainly restaurants. Then to gross profit. Like-for-like, you might have seen that we -- also in our press release that we are down 3.8%. That is driven, of course, by the lower volume but also driven by the margin pressure that we feel in the Netherlands when it comes to the overcapacity in the market is leading to pressure on margins. The underlying expenses, good contribution by our saving programs. But like-for-like, it's quite stable. Of course, we first see higher costs because of the acquisition and the efficiency programs are mitigated by the higher cost, for example, for wage inflation, the regular increase of the wages, the salaries and also the higher energy cost. Then on EBITDA, in total, you will see EUR 34.7 million, quite similar to last year, but this year includes EUR 4 million of the 2 acquisitions. You will see that the volumes are up. And first of all, it had to do with the unfavorable contracts in the first half that led to an increase in market share in Germany. We saw improved performance in Poland, although fragile, but we see improvements there. And we were also able to sell more of DML products as a substitute for the, let's say, more expensive raw materials. Yes, the gross profit is down almost completely because of the EUR 4 million issue, which we saw in the German sales contracts. Costs are quite stable. Same story, it's in almost all clusters, FTE savings, the efficiency programs are tipping in, what we see in here, for example, that also the higher volumes, of course, are leading to higher costs. Then the ROACE, yes, it's not in the place we want it to be with 4.7% and it's down to last year. Then the last cluster, which is the cluster United Kingdom, volumes are up because of the good performance, especially in the poultry sector. The other sectors are down basically because of the loss of a client in the pig sector. And the whole ruminant sector, as I already discussed, is suffering both on volume and margin. The gross profit is down as well with, what is it, [ EUR 1.8 million ] or something basically driven by the pressure we feel in the ruminant sector. The expenses are, yes, like I said, it's a repetition of the other clusters. FTE savings but we see higher costs, for example, energy and wages, which is leading to, let's say, stable operating expenditures. Now the EBITDA for this cluster down with EUR 1.2 million to EUR 8.4 million. And also here, ROACE is not on the level that we want it to be. If I try to summarize the results, I would say that, yes, given the challenging markets and the circumstances we are in, it still feels like a disappointing result. We see that the volumes are, of course, higher and driven by M&A but, like-for-like, under pressure. We see that EBITDA and net profit are down. But on the, let's say, balance sheet side, our working capital and net debt are on a decent level. And that Yoram are the highlights of our results over the first half.

Thank you, Roeland. In terms of strategic update, again, we set out our strategy, Built to Grow, last fall. So this is in terms of where we stand today. As I'm sure you have seen recently, there have been a number of reports. Be it the IPPC report or the complete presentation of the new green deal, one thing is clear, the agricultural sector is a major contributor to greenhouse gases. And whilst we can say that in Western Europe, and in the Netherlands in particular, we do far better in terms of environmental performance than anywhere else in the world, that is not a reason, in its own right, to say that we should not fully focus in terms of making that progress even more sustained and committing to substantial reductions. And we think we can do that. One of the initiatives that we have been involved with is with dairy farmers to embark on a scheme, a particular set of raw materials where we now are able to certify that by using our products in total, we will see a 10% reduction on the CO2 on farm in terms of the complete product. There are a number of initiatives that are all part of going certainly for the future of farming that we're engaged with. Again, many -- there's not going to be one silver bullet, but many elements where we can contribute to lowering of the greenhouse gases. And again, if you see from the previous strategic presentation, we've made hard commitments in terms of doing so as well. In terms of ambition, we are in the process of executing the improvement plan, what came out of our survey. The engagement was high. But like with any good survey, you always come across a number of elements that can be improved. So department by department, follow-up actions have been defined, and we look forward to the next time we do the survey to actually see have we made the progress that we set out to do. Next Level Innovation was the new group that we created to focus more on new differentiating technologies that, over time, can add value to our farming customers. All I can share at this point in time, we're making good progress, and we expect some new innovations to be launched quite soon. In terms of partnerships, we entered into a new partnership where the warehousing and delivery of bagged goods, which is totally different than 95% of our supply chain, which is all around bulk tanker loading. Bulk tanker loading, we either do ourselves or sometimes we outsource this. But bagged goods is often partial loads. Different type of vehicles require different type of logistics, and we've come to the conclusion that outsourcing that entirely is more efficient and better from a customer service. And that is exactly what we are in the process to implement. We created a much enhanced and much more customer-friendly e-business, too, which allows customers to place orders with a symbol -- a fingertip and provide them with a lot of ease of doing so. That model has been fully deployed now in all species in the Netherlands, and we are now in the process of rolling it out to Belgium, and the U.K. next in line. Operational excellence, again, certainly in light of the margin pressure that we are seeing, it's clear that we are in a very low margin business. Well, one thing is for sure in a very low margin business, you better make sure that you have your cost set up and you deploy your sites the best possible way. And again, we are making good progress. If you take out the acquisitions versus a year ago, we have 100 FTE less, and we are far from complete yet. So especially in footprint, we still have options. Recently, we announced the investments in our Eastern Germany plant in Beelitz , and we will be closing our Bardenitz facility. And so that's one of the elements that will be coming. We also save FTEs in terms of this bagged warehousing goods. So quite a few initiatives, all part of the EUR 10 million saving that we have committed to by 2025. M&A, as I mentioned, the recent M&A, especially De Hoop has contributed well. And also as part of the M&A process, we focus on existing countries, strengthening our positions there, as well as new countries possibly outside Europe. Happy to see that the pipeline is at least developing well there. So also the current market pressures will, for sure, create opportunities and necessity also to consolidate further. And again, we want to play our role there. In terms of sustainability, it's not always well enough understood that a large part of what we feed are actually byproducts of the food industry. And by using those, we really are, in a very circular way, regenerating and creating very valuable human proteins at the end of the day out of those. And in the U.K., we recently expanded our offering to our customers so that we are now able to have a more complete portfolio, allowing our customers to really benefit from our total feed offering here. There has been a recent changes in legislation. That legislation will come into force by the end of September, allowing processed animal proteins as well as the use of insects. And in both cases, we are very much engaged and have a number of projects underway to see how we can benefit from, again, a more sustainable agriculture and a more circular agriculture, where potentially less ] faraway locations may be needed. In terms of outlook and guidance, our expectation for the ruminant market remains unchanged. Overall, the global outlook is still positive. Clearly, the key elements that we are dealing with is the nitrogen situation in the Netherlands. For that, we need governmental support. And as most of us know, we are waiting now for a new government for a while. But again, I want to reemphasize that there is a valid technological solution that would be able to deal with and nature and building and construction as well as sustain an even more sustainable sector going forward. And that is certainly the one that we strongly advocate and will be to the benefit of the taxpayer because it's far, far more efficient than buying out farms and reducing the animals stable. In swine, we expect as before that the European consumption will be slowly decreasing. The warm restructuring in the Netherlands took place. It took place with a slightly -- to a slightly lower extent than we had previously anticipated. Yes, we are still dealing with ASF, and that will probably last for a while. Poultry remains the species for -- which has the best growth opportunities. And the big change is the very quick change in the retail segment to fully go to welfare chicken. And that will mean fewer animals. With fewer animals, that have a longer life with more opportunities also to add value in that whole process. In terms of our financial objectives, despite our disappointing first half, we firmly believe that we will achieve our longer-term goals that we've set out, the EUR 125 million to EUR 135 million EBITDA. We also plan to continue to deliver on our CapEx program as before and are on track to deliver the EUR 7 million in savings. In terms of the outlook for this year, we now expect the second half of this year to be better than the first half that we just concluded but, more or less, in line with the results that we achieved last year, which did not include the acquisitions. So we continue to expect still challenging circumstances also in the second half of this year. With that, you know that it's not all about just financial criteria. We are going for a completely integrated reporting where we look at doing well for our people, sharing our nobles with our customers. We talked a lot about going circular and really making sure that we take a leadership position on sustainability. But at the end of the day, shareholder value remains a pivotable point for us as well. And with that, I guess, we would like to open it up to any questions.

[Operator Instructions] And the first question comes from the line of Eric Wilmer from ABN ODDO.

My first question, you clearly shared your displeasure with the continued farmer and friendly political climate. You have previously indicated that you, as a company, are actively involved in these discussions with the politicians. Could you perhaps share to what extent any progress has been made during the discussions over the past 2 years? And to what extent do you feel that the government would be receptive to the system innovations that you just mentioned? That will be my first question.

Okay. Before there were statements made -- yes, innovation could play a role. And we've always believed there was a role to be played. But it's only recently when a few elements came together where not only we looked at what the feed can bring but also what new stable systems can bring, a new innovation that has been also advertised in the Financial Times recently, the FT recently, is the system that company called Lely has introduced, which segregates feed and poo indeed and comes up with reductions in terms of nitrogen of 75%, way more than what is needed in order to get in line with the recent reports that have been published. So it's the combination of very recent innovations, which actually enables now to make the statement that building construction, nature -- get nature back as well as preserving a healthy sector can actually be made. So I don't believe personally that news has really settled in, in all the politicians' minds. But this is crucial because, again, from a taxpayer point of view, this makes a notable difference in terms of investing in this know-how or investing in buying out farms, which will be a longer process, but also be far more expensive. So we are engaged. We are doing what we can as part of that. That's why also we put this in this announcement. So we are working together with our industry partners to make sure that this message comes across. And there are a number of parties that are very open-minded and embraced this. But we also know that it's early days in terms of creating a new cabinet, and that new cabinet will be decisive in terms of embracing this new path forward. But if you look at common logic, it will be very hard to not be in favor of this chosen path forward.

Okay. That's very helpful color. Then secondly, could you perhaps be a bit more specific on what exactly happened in Germany with the unfavorable sales contracts? And did you take any actions in order to ensure that these kinds of practices can no longer happen, for example, by organizational or reporting changes?

Yes. Thank you for your question, Eric. Indeed, so what happened is that we had kind of a misalignment between the procurement department and the sales department and obviously not, let's say, following strict procedures. Like you might be aware that in Germany, we have presales, so we have long-term contracts there. And when you sign off on a contract, a sales contract, then we want them to hedge that within a certain moment of time. Now those elements together with the pricing of the contract itself did not happen in a correct way. And that's leading to this loss of EUR 4 million. Indeed, what we have done, made changes to the way of working and, of course, also implications for personnel. And you might also have seen that we have a new MD in Germany, which is also -- not that it will -- that's the magic bullet, but for sure, he will also make sure that we are strict on our processes and policies when it comes to costing and pricing of contracts in Germany.

Okay. And I got actually got more questions, but my last question for now would be a question on your manufacturing base. Would you see further room for near-term plant closures, like you announced that you will do ongoingly in Germany, the one you announced in Q1.

The answer is yes. We are continuously looking how can we get more out of fewer plants. What you want to do is really invest in some debottleneck and the capacity of those and use those as best as you can and have fewer. So that will also lower the CapEx needs going forward. Obviously, you cannot go too far because you also need to look at the distance from the plant to that final customer. But the answer is yes, I do expect, over the next few years, we will see a few more opportunities to do so.

The next question comes from the line of Fernand de Boer from Degroof Petercam.

Let's say, on your guidance or actually you say on the raw materials, it is temporarily. But you also say we see, let's say, the first half was due to increased competition. So how should I look at that forward? Is it going to be more or less structurally lower because of competition? Or do you think that you can simply pass everything on? That's the first question.

A very good question, which is not very straightforward, as you can imagine, to answer. COVID has had an impact. There has been a volume impact. And the combination of that as well as the very high as speaking raw materials, and energy has created this complex situation which has led to more competitive activity. So assuming that the volume aspect from COVID disappears over time, you would expect that things would normalize more. But we will have to see this in practice. We want -- we don't want and we will not accept market share losses. We want to be competitive for our customers. But at the same point in time, we see that we are not happy with our results. But there were some other competitors that have recently published, and their results have not been great and significantly often below ours. So I don't believe there is a long-term room to keep margins low. We need to make sure that we all achieve investments worthy of returns because this business requires reinvestment. So at this point in time, I feel that there is a good chance that much of that pressure will be temporary, but the rest is still uncertain.

But if you mean temporary, that is more simply to say something for 2023 or the second half 2022 than short term?

I would say in terms of margins, the way to look at it is probably to look forward for the next couple of months and until the year. It's more difficult to predict going forward. But the traditional business in this industry has been through the cycles, that it does pass on raw material changes.

But if I look at let's say, now for this year, you're guiding, let's say, in EBITDA from EUR 90 million, maybe some -- the EUR 4 million, taking out the EUR 4 million, let's say, you're at EUR 95 million. And that's your starting point to get now in 4 years' time in 2025. So is then the EUR 125 million, EUR 135 million in 2025, is that then still based on margins returning to normal? So you actually don't need more contribution from cost savings or from M&A to get at that level?

We've always said in terms of the organic performance that we were expecting more difficult market share in states. And therefore, the EUR 10 million savings that we had committed as part of that number has always been there. So we do feel we will need that in order to achieve our -- the normal 0% to 3% that we set out in terms of organic performance.

Okay. Then on the energy cost because it was also mentioned and fuel cost. I think that is both in the gross margin line as in the SG&A line because I think in SG&A line last year, the energy costs were only EUR 28 million. So I think there must be substantially more on that kind of cost in the gross profit line or maybe the cost of goods sold. Is that correct?

Yes, that's correct. So the production costs are included in the energy costs in SG&A and the raw materials, obviously, are in the cost of goods sold.